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The core legal questions considered by the Court were:
1. Whether the impugned order dated 28th June 2024, which rejected the Input Tax Credit (ITC) claimed by the Petitioner due to an incorrect GST number on invoices, was valid.
2. Whether the Petitioner was entitled to claim ITC despite the invoices reflecting the incorrect GST number of the Bombay office instead of the Delhi office.
3. The constitutional validity of Section 16 (2) (aa) of the Central Goods and Services Tax Act, 2017, was also challenged, but this issue was contingent upon the resolution of the ITC claim.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 & 2: Validity of the Impugned Order and Entitlement to ITC
Relevant Legal Framework and Precedents:
The legal framework revolves around the provisions of the Central Goods and Services Tax Act, 2017, particularly Section 16, which governs the conditions and eligibility for claiming ITC. The specific subsection in question, Section 16 (2) (aa), outlines the requirements for availing ITC, including the necessity for accurate documentation.
Court's Interpretation and Reasoning:
The Court examined the circumstances under which the invoices were issued and noted that the only error was the mention of the Bombay GST number instead of the Delhi GST number. The Court recognized that the Petitioner was indeed a Delhi-based company and that the error was on the part of the supplier, Ahlcon Parenterals (India) Limited.
Key Evidence and Findings:
The Court considered the purchase orders and invoices presented by the Petitioner, which clearly demonstrated that the Petitioner was intended to be the recipient of the goods in Delhi. The Standing Counsel for the Respondent admitted that no other entity had claimed ITC on these purchases, reinforcing the Petitioner's position.
Application of Law to Facts:
The Court applied the provisions of the CGST Act and found that the rejection of ITC based solely on the incorrect GST number was disproportionate, especially when no other entity had claimed the credit. The Court emphasized the need to prevent substantial loss to the Petitioner due to a minor clerical error.
Treatment of Competing Arguments:
The Department argued that the incorrect GST number invalidated the ITC claim. However, the Court found this argument unpersuasive given the lack of any competing claims to the ITC and the minor nature of the error.
Conclusions:
The Court concluded that the impugned order rejecting the ITC was unjustified, and the Petitioner was entitled to claim the ITC for the relevant periods despite the clerical error.
Issue 3: Constitutional Validity of Section 16 (2) (aa)
This issue was not pressed further as the Petitioner agreed not to challenge the constitutional validity if the ITC claim was allowed.
SIGNIFICANT HOLDINGS
Preserve Verbatim Quotes of Crucial Legal Reasoning:
The Court held that "substantial loss would be caused to the Petitioner if the credit is not granted for such a small error on behalf of the supplier."
Core Principles Established:
The Court established that minor clerical errors in documentation, which do not result in any substantive claim by another entity, should not lead to the denial of ITC when the recipient's entitlement is otherwise clear.
Final Determinations on Each Issue:
The impugned Order in Original dated 28th June 2024 was set aside, and the Petitioner was permitted to avail of the ITC for the specified periods. The challenge to the constitutional validity of Section 16 (2) (aa) was not pursued further.
Input Tax Credit - excess Input Tax Credit - rejection of ITC for incorrect GSTIN on supplier invoice - correction of supplier invoices to permit ITC - vires of Section 16(2)(aa) of the Central Goods and Services Tax Act, 2017
Input Tax Credit - rejection of ITC for incorrect GSTIN on supplier invoice - correction of supplier invoices to permit ITC - Whether the petitioner was entitled to avail Input Tax Credit notwithstanding that the supplier's invoices erroneously reflected the petitioner's Bombay GSTIN instead of its Delhi GSTIN, and whether the impugned order rejecting such ITC should be set aside permitting correction and grant of credit. - HELD THAT: - The court noted that the petitioner's name was correctly mentioned on the invoices while the incorrect GSTIN of the Bombay office was recorded due to supplier error. The Department did not contest in the counter-affidavit that no other entity had claimed the same credit, and the Standing Counsel conceded that fact. Having regard to these admissions and the potential substantial loss to the petitioner arising from denial of credit for a supplier's inadvertent mistake, the court exercised its discretion to set aside the impugned order that rejected the ITC. The petitioner offered to withdraw the challenge to the constitutional validity if invoice correction and granting of ITC were permitted; on that basis, the court allowed correction and directed that Input Tax Credit be permitted for the specified supplies and periods. The court's order confines relief to permitting availment of ITC after correction and does not adjudicate wider questions beyond the facts of this case. [Paras 8, 10, 11]
Impugned OrderinOriginal dated 28th June, 2024 rejecting the ITC set aside; petitioner permitted to avail Input Tax Credit after correction of the invoices in respect of the supplies for the periods 2017-18, 2018-19, 2019-20 and 2020-21 as recorded in the order.
Final Conclusion: Petition partly allowed: the order rejecting the claimed Input Tax Credit is set aside and the petitioner is permitted to avail the credit for the specified periods upon correction of the supplier invoices; the challenge to the constitutional validity was not pressed once correction and grant of credit were permitted.
The core legal questions considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS
Relevant legal framework and precedents
The relevant legal framework is derived from Section 107 of the Central GST Act, 2017 and the M.P. GST Act, 2017. Sub-section (1) of Section 107 allows an aggrieved person to appeal to the Appellate Authority within three months from the communication of the decision or order. Sub-section (4) permits the Appellate Authority to condone a delay of up to one month if sufficient cause is shown, but explicitly excludes the applicability of the Limitation Act, 1963.
The court referenced the Supreme Court's decision in Chintels India Limited Vs. Bhayana Builders Private Limited, which clarified that the Limitation Act does not apply to proceedings under certain statutes, emphasizing strict adherence to statutory timelines.
Court's interpretation and reasoning
The Court interpreted Section 107 to mean that the Appellate Authority is bound by the statutory time limits set forth, which include a maximum condonable delay of one month beyond the initial three-month period. The Court emphasized that the language of the statute is clear and does not permit condonation beyond this period.
Key evidence and findings
The petitioner failed to disclose the date on which the order was communicated, leading the Court to calculate the limitation period from the date of the order itself. The appeal was filed 95 days after the order date, exceeding the permissible delay period.
Application of law to facts
The Court applied the statutory provisions strictly, concluding that neither the Appellate Authority nor the High Court has the jurisdiction to condone a delay beyond the prescribed one month. The absence of any statutory provision allowing for further condonation was pivotal in the Court's decision.
Treatment of competing arguments
The petitioner argued for the remand of the case based on a precedent set in Praveen Murarka Prop. M/s Modware India vs. CGST And Central Excise And Others, suggesting that the appeal should be considered on its merits. However, the Court found the statutory limits and the precedent set by M/s Sai Rubber works vs. State of Madhya Pradesh and Others more compelling, which emphasized strict compliance with fiscal statutes.
Conclusions
The Court concluded that the appeal was rightly dismissed as time-barred, given the statutory constraints on condoning delays beyond one month. The petition was dismissed, with no costs ordered.
SIGNIFICANT HOLDINGS
Preserve verbatim quotes of crucial legal reasoning
The Court reiterated the Supreme Court's stance: "Section 5 of the Limitation Act, 1963 does not apply and that any delay beyond 120 days cannot be condoned."
Core principles established
Final determinations on each issue
Dismissal of appeal as time barred in respect of Assessment Year from 01.04.2021 to 31.03.2022 - power of Appellate Authority to condone a delay of more than one month in filing an appeal - HELD THAT:- As per sub-section (1) of Section 107 " any person aggrieved by any decision or order passed under the Act or the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act by an adjudicating authority may prefer to Appellate Authority within three months from the date on which the decision or order is communicated to such person". As per sub-section (4) of Section 107 "The Appellate Authority may, if he is satisfied that the appellant was prevented by sufficient cause from presenting the appeal within the aforesaid period of three months or six months, as the case may be, allow it to be presented within a further period of one month. Therefore, the Appellate Authority has power to condone the delay for the period of one month only but the provisions of the Limitation Act has not been made applicable".
The Apex Court has taken a similar view in the matter of Chintels India Limited Vs. Bhayana Builders Private Limited reported in [2021 (2) TMI 510 - SUPREME COURT] has held that 'What follows from this is that the application itself must be within time, and if not within a period of three months, must be accompanied with an application for condonation of delay, provided it is within a further period of 30 days, this Court having made it clear that section 5 of the Limitation Act, 1963 does not apply and that any delay beyond 120 days cannot be condoned.'
In application for condonation of delay, the petitioner has pleaded that he downloaded the order for further proceedings i.e. for filing of an appeal and in this process, there has been a delay of 95 days in filing the appeal. The petitioner has calculated the limitation from the date of order i.e. 21.07.2023. The petitioner has not disclosed the date on which the order was communicated to him, therefore, the limitation is liable to be counted from the date of order. Therefore, the Appellate Authority has no power to condone the delay. In absence of any statutory provisions, even the High Court cannot condone the delay beyond the period of one month.
Conclusion - The Appellate Authority correctly dismissed the appeal as time-barred, given the statutory constraints.
Petition dismissed.
Issues: Whether an assessment order under the Goods and Services Tax Act, 2017 is liable to be set aside for non-mention of a Document Identification Number (DIN).
Analysis: The impugned assessment order was issued without a DIN. The decision relied on the Supreme Court's view that an order lacking a DIN is non-est and invalid, as well as earlier Division Bench decisions of the Court applying the CBIC circular governing DIN requirements. In light of that legal position, absence of DIN in the uploaded assessment order affected its validity.
Conclusion: The assessment order was invalid for want of DIN and was liable to be set aside.
Final Conclusion: The writ petition succeeded, with liberty to complete a fresh assessment after notice and by assigning a DIN, and the relevant intervening period was directed to be excluded for limitation purposes.
Ratio Decidendi: An assessment order under the GST regime that does not bear a DIN is non-est and cannot be sustained.
Challenge to assessment order - said proceedings did not contain a DIN number - HELD THAT:- The question of the effect of non-inclusion of DIN number on proceedings, under the G.S.T. Act, came to be considered by the Hon’ble Supreme Court in the case of Pradeep Goyal Vs. Union of India & Ors [2022 (8) TMI 216 - SUPREME COURT]. The Hon’ble Supreme Court, after noticing the provisions of the Act and the circular issued by the Central Board of Indirect Taxes and Customs (herein referred to as “C.B.I.C.”), had held that an order, which does not contain a DIN number would be non-est and invalid.
A Division Bench of this Court in the case of M/s. Cluster Enterprises Vs. The Deputy Assistant Commissioner (ST)-2, Kadapa [2024 (7) TMI 1512 - ANDHRA PRADESH HIGH COURT], on the basis of the circular, dated 23.12.2019, bearing No.128/47/2019-GST, issued by the C.B.I.C., had held that non-mention of a DIN number would mitigate against the validity of such proceedings.
Conclusion - In view of the aforesaid judgments and the circular issued by the C.B.I.C., the non-mention of a DIN number in the order, which was uploaded in the portal, requires the impugned order to be set aside.
This Writ Petition is disposed of setting aside the impugned proceedings, dated 18.07.2023, issued by the 1st respondent, with liberty to the 1st respondent to conduct fresh assessment, after giving notice and by assigning a DIN number to the said order.
Outcome: The writ petition was disposed of with liberty to the petitioner to avail the statutory appeal remedy before the appellate authority and with a direction that any appeal filed within the stipulated period be entertained without insisting on limitation and decided in accordance with law.
Principles of natural justice - alternative appellate remedy - appeal under Section 107 of the TNGST Act, 2017 - condonation of delay - entertainment of appeal without insisting on limitation - direction to dispose appeal within fixed time
Alternative appellate remedy - appeal under Section 107 of the TNGST Act, 2017 - entertainment of appeal without insisting on limitation - direction to dispose appeal within fixed time - Petitioner must invoke the statutory remedy of appeal before the Deputy Commissioner (GST), Madurai, and the appellate authority shall entertain any appeal filed within one month without insisting on limitation and dispose it within two months. - HELD THAT: - The High Court recorded that a remedy of appeal exists before the Deputy Commissioner (GST) under Section 107 of the TNGST Act, 2017. Rather than adjudicating the challenge to the assessment order, the Court granted liberty to the petitioner to file the statutory appeal within one month from receipt of this order and directed the appellate authority to entertain such appeal notwithstanding any limitation plea. The Court further directed that the appellate authority shall decide the appeal in accordance with law within two months from filing. No order as to costs was made. [Paras 4]
Writ petition disposed with liberty to file appeal within one month; appellate authority to entertain without insisting on limitation and decide within two months.
Principles of natural justice - condonation of delay - Allegation of violation of the principles of natural justice in the assessment order was not adjudicated on merits and is left to be agitated before the appellate authority. - HELD THAT: - The petitioner contended that the assessment for 2018-2019 was passed without affording adequate opportunity, alleging breach of principles of natural justice. The High Court did not rule on that substantive contention; instead, having noted availability of the statutory appellate remedy, the Court disposed the writ petition by directing the petitioner to raise all grounds, including the natural justice plea, before the appellate forum. Thus, the question of breach of natural justice is remanded to the appellate authority for fresh consideration in the appeal. [Paras 4]
Substantive challenge alleging breach of natural justice not decided; remitted to appellate authority to be considered in the appeal.
Final Conclusion: The writ petition challenging the assessment order for 2018-2019 and consequential attachment is disposed of by directing the petitioner to file the statutory appeal before the Deputy Commissioner (GST), Madurai within one month; the appellate authority shall entertain the appeal without insisting on limitation and decide it in accordance with law within two months.
Permission to withdraw with leave to file fresh petition carrying better particulars - HELD THAT:- The writ petition has not been moved as yet. In the circumstances, prayer of petitioner is allowed.
The writ petition is dismissed with liberty to file afresh with better particulars.
Issues: Whether the appellate authority was justified in rejecting the petitioner's appeal as time barred and declining to condone the delay, and whether the matter required remand for decision on merits.
Analysis: The challenge arose from the dismissal of the statutory appeal on limitation. The Court noted the petitioner's case that the original order was not properly served electronically or physically and that the appeal period under Section 107 of the Central Goods and Services Tax Act, 2017 runs from communication of the order. It found that the appellate authority had not fairly verified service of the order before rejecting the condonation application and had proceeded only on the pleadings. In such circumstances, the refusal to condone delay and the consequential dismissal of the appeal could not be sustained.
Conclusion: The order dismissing the appeal as time barred was set aside, any delay in filing the appeal was condoned, and the appeal was remitted to the appellate authority for decision on merits.
Final Conclusion: The petitioner obtained relief against the limitation-based rejection, and the substantive appeal was restored for fresh adjudication before the appellate authority.
Ratio Decidendi: Where service of the original order is disputed, the appellate authority must fairly verify communication before rejecting a condonation request and cannot dismiss the appeal on limitation without such verification.
Dismissal of appeal as time barred - HELD THAT:- In the considered opinion of this Court, the appellate authority in rejecting the application for condonation of delay and as a consequence rejecting the appeal vide impugned order dated 30/05/2024 on the ground of delay, does not seem to be proper, legal and justified.
The appellate authority ought to have given a fair consideration to the contentions of the petitioner and ought to have got it verified whether the order was duly served either physically or electronically to the petitioner and only then should have taken a decision. In the absence of any such exercise and deciding the application for condonation of delay only on the basis of pleadings, the impugned order, in the considered opinion of this Court, is not sustainable and deserves to be and is accordingly set aside. In consequence thereof, delay, if any in filing the appeal by the petitioner before the appellate Court is hereby condoned.
The matter stands remitted back to the appellate authority i.e. respondent No. 1 to consider and decide the appeal filed by the petitioner on its own merits after due verification of the facts and also on due consideration of the contentions that the petitioner has raised in this petition - Petition disposed off by way of remand.
Issues: Whether the writ petition challenging the intimation of tax issued under Section 73(5) of the Karnataka Goods and Services Tax Act, 2017 was premature and not maintainable at that stage.
Analysis: The intimation under Section 73(5) was only an ascertainment of tax, coupled with liberty to pay the amount with interest or submit objections. No show cause notice under Section 73(1) had been issued and no adjudication order under Section 73(9) had been passed. The challenge was therefore directed against a stage preceding the statutory adjudicatory process.
Conclusion: The writ petition was premature and could not be entertained at that stage; the challenge failed.
Prematurity of writ petition - intimation of ascertained tax under Section 73(5) of the KGST/CGST Act, 2017 - show cause notice under Section 73(1) of the KGST Act - order under Section 73(9) of the KGST Act - opportunity to file submissions against intimation - exhaustion of statutory process before judicial intervention
Prematurity of writ petition - intimation of ascertained tax under Section 73(5) of the KGST/CGST Act, 2017 - opportunity to file submissions against intimation - show cause notice under Section 73(1) of the KGST Act - order under Section 73(9) of the KGST Act - exhaustion of statutory process before judicial intervention - Challenge to Annexure-D, an intimation under Section 73(5), is premature and not amenable to writ relief at this stage. - HELD THAT: - The Court examined Annexure-D and held that it is only an intimation of ascertained tax which affords the petitioner liberty either to pay the ascertained tax with interest or to file submissions opposing the intimation. The intimated exercise does not constitute a final adjudicatory order; if the petitioner fails to pay, the statutory process contemplates issuance of a show cause notice under Section 73(1), followed by adjudication and passing of an order under Section 73(9). Consequently, judicial intervention at the intimation stage would bypass the statutory sequence and the requirement of exhausting the statutory remedies. In light of these features, the Court concluded that the writ petition is premature and not maintainable at this juncture. [Paras 4, 5, 6]
Writ petition rejected as premature; petitioner may make submissions or await issuance of show cause notice and final order under the statutory scheme.
Final Conclusion: The petition was dismissed as premature because Annexure-D is only an intimation under Section 73(5) offering payment or an opportunity to submit objections; absence of a show cause notice under Section 73(1) and a final order under Section 73(9) makes the matter unripe for writ relief.
The core legal issues considered in this judgment revolve around the validity of the retrospective cancellation of a Goods and Services Tax (GST) registration. Specifically, the issues include:
ISSUE-WISE DETAILED ANALYSIS
Relevant legal framework and precedents:
The legal framework is primarily governed by Section 29 of the Central Goods and Services Tax Act, 2017. This section allows the proper officer to cancel the GST registration of a person from a date deemed fit, including a retrospective date, provided the circumstances set out in the subsection are satisfied.
The Court referred to precedents such as Riddhi Siddhi Enterprises vs. Commissioner of Goods and Services Tax (CGST), South Delhi & Anr., Ramesh Chander vs Assistant Commissioner of Goods and Services Tax, Dwarka Division, CGST Delhi & Anr., and Delhi Polymers vs Commissioner, Trade and Taxes & Anr. These cases emphasized that the power to cancel registration retrospectively should not be applied mechanically or routinely and must be based on objective criteria with clear reasoning.
Court's interpretation and reasoning:
The Court emphasized that the power to cancel GST registration retrospectively is not absolute and must be exercised with due application of mind and clear reasoning. The mere existence of the power does not justify its invocation without a detailed rationale. The Court highlighted that retroactive cancellations have significant consequences, such as denying input tax credits to the taxpayer's customers, which necessitates a well-reasoned order.
Key evidence and findings:
The Court found that the SCN dated 12 February 2024 did not disclose any intent to cancel the GST registration retrospectively from 07 February 2019. Furthermore, the cancellation order lacked any reasoning or justification for the retrospective date, which the Court found to be a critical deficiency.
Application of law to facts:
Applying Section 29 of the Act, the Court held that the failure to provide reasons or prior notice of the intent to cancel registration retrospectively invalidated the cancellation order. The Court noted that the absence of reasons in both the SCN and the cancellation order demonstrated a lack of due application of mind, rendering the retrospective cancellation unsustainable.
Treatment of competing arguments:
The respondent's argument that the retrospective cancellation was justified was not supported by any substantive reasoning in the SCN or the cancellation order. The Court found that the lack of reasoning and failure to notify the petitioner of the retrospective intent were fatal to the respondent's position.
Conclusions:
The Court concluded that the writ petition was entitled to succeed due to the absence of reasons in the SCN and the failure to notify the petitioner of the retrospective cancellation intent. The impugned order was modified to reflect that the cancellation would take effect from the date of the SCN, 12 February 2024, rather than the retrospective date of 07 February 2019.
SIGNIFICANT HOLDINGS
The Court held that:
The Court's decision underscores the importance of providing clear reasons and prior notice when exercising the power to cancel GST registration retrospectively, ensuring that such actions are not arbitrary and are subject to judicial scrutiny.
Requirement of a reasoned order and prior notice for retrospective cancellation of GST registration - Power to cancel GST registration with retrospective effect under Section 29 - Retrospective cancellation cannot be mechanical or routine and must be based on objective satisfaction - Consideration of consequences of retrospective cancellation on input tax credit
Requirement of a reasoned order and prior notice for retrospective cancellation of GST registration - Power to cancel GST registration with retrospective effect under Section 29 - Validity of retrospective cancellation where the Show Cause Notice did not disclose intention to cancel from a retrospective date and the cancellation order did not state reasons for retrospective effect - HELD THAT: - The Court held that while the competent authority has power under Section 29 to cancel GST registration from a retrospective date, that power cannot be exercised mechanically. A retrospective cancellation carries deleterious consequences and therefore the show cause notice must put the taxpayer on notice that cancellation from a retrospective date is contemplated and the eventual cancellation order must record reasons demonstrating objective satisfaction and due application of mind. Absent such disclosure in the SCN and absence of rudimentary reasons in the cancellation order, the action is invalid. The Court relied on the principles articulated in earlier decisions emphasising that retrospective cancellation must be based on objective criteria, that the authority should consider consequences (including effect on recipients' input tax credit), and that lack of clarity in the SCN and order vitiates the cancellation. Applying these precepts, the impugned retrospective cancellation could not be sustained and required modification. [Paras 4, 5, 6]
Impugned cancellation set aside insofar as it took effect retrospectively; cancellation will take effect from the date of the Show Cause Notice, 12 February 2024.
Final Conclusion: Writ petition allowed: retrospective effect of cancellation from 07 February 2019 quashed; GST registration stands cancelled only from the date of the Show Cause Notice, 12 February 2024, because the SCN and cancellation order lacked prior notice and reasoned findings necessary to sustain a retrospective cancellation.
Outcome: The writ petition was disposed of in terms of the earlier decision, and the challenge to section 174(2) of the GST Act, 2017 was made subject to the final outcome of the proceedings before the Supreme Court.
Challenge to section 174(2) of the GST Act, 2017 - HELD THAT:- The issue involved in the present petition stands finally adjudicated by this Court in Tecnimont Spa India Project Office vs. State of Punjab and another [2024 (12) TMI 1223 - PUNJAB AND HARYANA HIGH COURT] wherein it was held that 'we propose to dispose of all these writ petitions and direct that the challenge to section 174(2) of the GST Act, 2017 would be subject to the final outcome of the decision in the case of T.S. Belaraman [2024 (5) TMI 1498 - SC ORDER].'
This Writ Petition also disposed off in the aforesaid terms.
The core legal questions considered in this judgment are:
(i) Whether the services provided by the applicant to the school students by way of transportation of students and staff should be considered as services provided to the school (Educational Institute).
(ii) Whether the services provided by the applicant are exempted from GST as per Serial No.66 of Notification No. 12/2017-Central Tax (Rate) dated 28th June 2017 or any other applicable provision of the Act.
ISSUE-WISE DETAILED ANALYSIS
Issue (i): Services Provided to the School (Educational Institute)
Relevant legal framework and precedents: The legal framework involves the interpretation of whether services provided by the applicant to school students by way of transportation can be classified as services provided to an educational institution. The relevant statutes include the Central Goods and Services Tax Act and the Tamil Nadu Goods and Services Tax Act, particularly the provisions relating to service classification and exemptions.
Court's interpretation and reasoning: The Court examined the lease agreement between the applicant and the school, which was primarily executed to comply with statutory requirements. The agreement did not specify any consideration paid by the school to the applicant for transportation services, nor did it detail how transportation fees were to be collected.
Key evidence and findings: The applicant collected transportation fees directly from students, as evidenced by receipts indicating GST collection at a rate of 5%. The profit and loss account showed income solely from student transport fees, with no financial transactions involving the school.
Application of law to facts: The Court determined that since the applicant received all consideration directly from students and not from the school, the services were not rendered to the school. The role of the school was limited to compliance with statutory regulations, and it did not provide or receive any transportation services.
Treatment of competing arguments: The applicant argued that the service was provided to the school as per the lease agreement. However, the Court found that the agreement was a formality, and the actual service recipient was the student, not the school.
Conclusions: The Court concluded that the services provided by the applicant to the school students by way of transportation could not be considered as services provided to the school. The first question was answered in the negative.
Issue (ii): Exemption from GST
Relevant legal framework and precedents: The legal framework involves the interpretation of Serial No.66 of Notification No. 12/2017-Central Tax (Rate) dated 28th June 2017, which exempts certain services provided to educational institutions from GST.
Court's interpretation and reasoning: The Court analyzed whether the transportation services provided by the applicant qualified for exemption under the said notification. The exemption applies only if services are provided to an educational institution.
Key evidence and findings: The applicant charged and collected GST from students directly, and no consideration was paid by the school for transportation services. The Court noted that the service was classified under SAC 9964, attracting GST at 5% without ITC.
Application of law to facts: Since the applicant received payment directly from students and not from the educational institution, the service did not qualify for exemption under the notification. The Court also examined other legal provisions and found no applicable exemptions.
Treatment of competing arguments: The applicant contended that the service was exempt due to its nature of transportation for educational purposes. However, the Court emphasized the necessity of a direct service relationship with the educational institution for exemption eligibility.
Conclusions: The Court concluded that the services provided by the applicant were not exempt from GST under Serial No.66 of Notification No. 12/2017-Central Tax (Rate) or any other provisions. The second question was answered in the negative.
SIGNIFICANT HOLDINGS
The Court established the following core principles:
(i) Services provided directly to students, with no financial involvement or service relationship with the educational institution, do not qualify as services provided to an educational institution.
(ii) For GST exemption under Serial No.66 of Notification No. 12/2017, there must be a direct service relationship with the educational institution.
Final determinations on each issue:
(i) The service provided by the applicant to the school students by way of transportation of students and staff cannot be considered as services provided to the school (Educational Institute).
(ii) The service provided by the applicant is not exempted from GST, either under Serial No.66 of Notification No. 12/2017 Central Tax (Rate) or any other provisions of the Act.
Services provided to an educational institution - exemption under Notification No.12/2017-transportation of students, faculty and staff - transport of passenger by any motor vehicle-classification under SAC 9964 attracting GST at 5% without input tax credit
Services provided to an educational institution - Whether the applicant's transportation of students and staff is to be treated as services provided to the school (educational institution). - HELD THAT: - The Authority examined the lease agreement, receipts, and accounts and found that although a lease agreement existed with the school, the agreement did not record any consideration payable by the school nor prescribe collection mechanics. The applicant issues receipts in its own name and receives transportation fees directly from students; the Profit & Loss account shows bus fees received from students and no receipts or payments involving the school. Consequently, the school neither pays for nor receives the transportation service in substance. The Authority concluded that the lease was executed to meet statutory motor-vehicle requirements and did not convert the applicant's services into services provided to the school. Therefore, on the facts and documents before it, the service is not a service rendered to the educational institution. [Paras 6, 7]
The transportation service provided by the applicant to students and staff is not to be considered as services provided to the school.
Exemption under Notification No.12/2017-transportation of students, faculty and staff - transport of passenger by any motor vehicle-classification under SAC 9964 attracting GST at 5% without input tax credit - Whether the applicant's services are exempt from GST under Sl. No.66 of Notification No.12/2017 or any other provision of the Act, and the correct classification/rate if not exempt. - HELD THAT: - Entry at Sl. No.66 exempts services by way of transportation of students, faculty and staff only when such services are provided to an educational institution. Having found that no service is provided to the school and that consideration is received directly from students, the Authority held the exemption inapplicable to the applicant under the facts of this case. Further, the Authority examined other provisions and found no other exemption available. On the basis that the applicant renders transport services directly to passengers, the activity falls within 'transport of passenger by any motor vehicle' classified under SAC 9964, attracting GST at 5% without input tax credit as per the relevant notification. [Paras 6, 7]
The services are not exempt under Sl. No.66 of Notification No.12/2017 or any other provision; they are taxable as 'transport of passenger by any motor vehicle' at 5% without ITC.
Final Conclusion: Advance ruling: (i) the applicant's transportation of students and staff is not a service to the school; and (ii) such services are not exempt under Sl. No.66 of Notification No.12/2017 or any other provision and are taxable as passenger transport under SAC 9964 at 5% without ITC.
The core legal questions considered in this judgment are:
a) Whether the Income Tax Appellate Tribunal was correct in assessing the seized cash as unaccounted under Section 69A of the Income Tax Act, despite the appellants' sworn statements declaring the cash as commission income and offering it as income from other sources.
b) Whether the Tribunal was right in assessing the seized cash as unaccounted under Section 69A, given the appellants' declaration of the income as commission income, which could be assessed as either income from other sources or business income.
c) Whether the Tribunal was justified in levying tax on hypothetical income that had neither accrued, arisen, nor been received by the appellants, based solely on their statements.
d) Whether the Tribunal was correct in assessing the entire cash seized as unaccounted under Section 69A, even though the cash was explainable with the cash in hand of other individuals residing in the searched premises.
ISSUE-WISE DETAILED ANALYSIS
Issue a & b: Assessment of Seized Cash under Section 69A
Relevant Legal Framework and Precedents: Section 69A of the Income Tax Act provides that if an assessee is found to be the owner of money not recorded in the books of account, and fails to satisfactorily explain the nature and source of the acquisition, such money may be deemed as the income of the assessee. Section 115BBE mandates a 60% tax on such income.
Court's Interpretation and Reasoning: The Court emphasized that the appellants' mere declaration of the cash as commission income was insufficient without a satisfactory explanation of the source, as required by Section 69A. The appellants' failure to respond to show cause notices further indicated their indifference and lack of a satisfactory explanation.
Key Evidence and Findings: The appellants declared the seized cash as commission income but provided no supporting evidence or explanation for its source, despite opportunities to do so.
Application of Law to Facts: The Court applied Section 69A, noting the appellants' failure to provide a satisfactory explanation for the cash, thereby classifying it as unexplained money subject to taxation under Section 115BBE.
Treatment of Competing Arguments: The appellants argued that their declaration was sufficient to satisfy the department, but the Court rejected this, citing the need for a satisfactory explanation beyond mere declarations.
Conclusions: The Court concluded that the appellants' failure to provide a satisfactory explanation justified the assessment of the cash as unaccounted under Section 69A, leading to the application of Section 115BBE.
Issue c: Taxation on Hypothetical Income
Relevant Legal Framework and Precedents: The appellants contended that the tax was levied on hypothetical income. However, the Court referenced the Delhi High Court's decision in Shashi Garg v. Principal Commissioner of Income Tax, which affirmed the burden on the assessee to explain cash deposits.
Court's Interpretation and Reasoning: The Court found the appellants' argument unpersuasive, noting that the burden to explain the source of income lies with the assessee, and their failure to do so results in the income being deemed unexplained.
Key Evidence and Findings: The appellants' lack of response to the show cause notices and failure to provide a satisfactory explanation were pivotal in the Court's decision.
Application of Law to Facts: The Court applied the principle that unexplained cash deposits can be taxed as income, rejecting the notion of hypothetical income.
Treatment of Competing Arguments: The appellants' argument of hypothetical income was dismissed, with the Court emphasizing the need for a plausible explanation of income sources.
Conclusions: The Court upheld the assessment of the cash as unexplained income, rejecting the argument of hypothetical income.
Issue d: Explanation of Cash with Other Residents
Relevant Legal Framework and Precedents: The appellants argued that the cash could be explained with the cash in hand of other residents. However, the Court focused on the appellants' responsibility to explain their own cash holdings.
Court's Interpretation and Reasoning: The Court found no merit in the argument, as the appellants failed to provide evidence linking the seized cash to other residents' cash holdings.
Key Evidence and Findings: The appellants did not provide any evidence to support their claim that the cash was explainable with other residents' cash.
Application of Law to Facts: The Court applied Section 69A, emphasizing the appellants' failure to explain the source of the cash independently.
Treatment of Competing Arguments: The argument regarding other residents' cash was dismissed due to lack of evidence.
Conclusions: The Court concluded that the appellants' failure to provide a satisfactory explanation justified the assessment of the cash as unaccounted under Section 69A.
SIGNIFICANT HOLDINGS
The Court held that the appellants' mere declaration of the cash as commission income was insufficient without a satisfactory explanation of the source, as required by Section 69A. The appellants' failure to respond to show cause notices indicated a lack of satisfactory explanation, justifying the assessment of the cash as unaccounted. The Court emphasized the burden on the assessee to explain cash deposits, rejecting the argument of hypothetical income. The Court dismissed the argument regarding other residents' cash due to lack of evidence. All substantial questions of law were answered against the appellants, leading to the dismissal of the appeals.
Assessing the seized cash as unaccounted cash u/s 69A - appellant stated under oath that it had earned commission income and duly complied with it and offered it as income from other sources - HELD THAT:- The very fact that the assessee’s did not even respond to the show cause notices issued to them would show that they were indifferent to the situation. However, the questions of law raised before this court remain as if the assessee’s have disclosed their source of income and that the declaration made during the search operation is sufficient to bring the case outside the purview of Section 69A r/w Section 115BBE.
This court is unable to appreciate the issue as a pure question of law or arguments of the appellants. Even if an explanation is given, such explanation has to be satisfactory in the opinion of the Assessing Officer in terms of Section 69A of the Income Tax Act.
In this case, there is no explanation. The money seized was not disclosed and hence it is an unexplained money. Mere declaration that it was received as commission without an explanation about the source with supporting material attracts Section 69A and the tax liability under Section 115BBE follows. See Shashi Garg[2018 (12) TMI 583 - DELHI HIGH COURT] wherein held burden to explain the source of cash deposit was on the appellant-assessee, who as per the finding has not been able to discharge this burden. The evidence on record is undisputed, and the inference and factual findings recorded we could observe are supported by cogent and weighty reasoning. Explanation of the appellant-assessee has been duly considered and not ignored.
Decided against assessee.
Issues: Whether the petitioner was entitled to avail the Direct Tax Vivad Se Vishwas Scheme, 2024 and whether rejection of Form-1 on the ground that the petitioner had waived the right of appeal was sustainable.
Analysis: The scheme applies where disputed tax is pending before an appellate forum by way of appeal, writ petition, or special leave petition on the specified date. The petitioner's revision under Section 264 of the Income-tax Act, 1961 had been dismissed, and the subsequent appeal before the appellate authority was on file and pending. The question of whether that appeal was maintainable was held to be for the appellate authority to decide, and the existence of such a pending challenge was sufficient to attract the scheme. The rejection of the application on a jurisdictional objection was therefore not proper.
Conclusion: The petitioner was entitled to the benefit of the scheme, and the rejection of Form-1 was unsustainable.
Ratio Decidendi: Where a tax demand is under challenge by a pending appeal before the appellate forum, the assessee cannot be denied the benefit of a dispute-settlement scheme merely because the authority questions the appeal's maintainability; such objections are to be decided in the appellate proceedings themselves.
Rejecting the application filed by the petitioner under Direct Tax Vivad Se Vishwas Scheme, 2024 - HELD THAT:- Government has introduced the DTVSV scheme with an intention to resolve the issues relating to the tax liability. The pre-condition for availing the benefit under DTVSV scheme is that the tax liability has to be disputed by way of appeal or writ petition or Special Leave Petition.
This Court is of the view that the maintainability of the appeal has to be decided by the Appellate Authority. Since the Revisional Authority has dismissed the revision petition filed by the petitioner citing the reason that the petitioner is entitled to avail appeal remedy, the petitioner has filed appeal before the Appellate Authority.
The appeal has been numbered and taken on file. It is for them to decide whether the appeal has to be entertained or rejected. Even the appeal got rejected on the ground of maintainability, still the petitioner is entitle to challenge the same by way of writ petition since no other alternate remedy is available.
Therefore, in the present case, the tax liability assessed by the Taxing Authority has been disputed and the same is pending before the Appellate Authority.
Therefore, the respondents rather than giving quietus to the issue, rejecting the application citing the jurisdictional issue which needs to be decided by the Appellate Authority is not proper. Hence, this Court is inclined to set aside the order dated 12.02.2024, rejecting the Form-1 filed by the petitioner under DTVSV Scheme.
The order impugned herein is set aside and the 1st respondent is directed to accept the petitioner's application filed under DTVSV Scheme on 04.10.2024 and to issue discharge certificate to the petitioner in accordance with the provision of the DTVSC scheme.
The core legal issue considered in this judgment is whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in deleting the addition made by the Assessing Officer under section 69A of the Income Tax Act, 1961. Specifically, the question was whether the cash deposits in the assessee's bank accounts constituted unexplained income liable to be taxed under section 69A.
ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents
Section 69A of the Income Tax Act, 1961, deals with unexplained money, etc., found in the possession of the assessee. If the assessee is unable to satisfactorily explain the nature and source of such money, it may be deemed to be the income of the assessee for that financial year. The precedent cited by the assessee was the Supreme Court decision in the case of Smt. P.K. Noorjahan, where it was held that even if the explanation about the nature and sources of the purchase money was not satisfactory, the income could not be deemed if it was not possible for the assessee to earn such an amount.
Court's Interpretation and Reasoning
The Tribunal noted that the CIT(A) had considered the fact that the Assessing Officer had not provided evidence that the entire bank deposits were the income of the assessee. The CIT(A) reasoned that the Assessing Officer failed to consider the withdrawals from the bank accounts and whether these withdrawals were used for personal expenses or investments. The Tribunal agreed with the CIT(A) that without evidence of personal use, the deposits alone could not be deemed income.
Key Evidence and Findings
The evidence considered included the bank statements showing both deposits and withdrawals. The CIT(A) found that the Assessing Officer had only considered the deposits without analyzing the withdrawals, which could indicate the funds were used in the business operations rather than being unexplained income.
Application of Law to Facts
The Tribunal applied the principles from the P.K. Noorjahan case, emphasizing that the mere presence of deposits without evidence of ownership or use for personal gain could not justify taxation under section 69A. The Tribunal noted that the assessee had declared income from salary, other sources, and business, which the Assessing Officer accepted in computing the total income.
Treatment of Competing Arguments
The Revenue argued that the assessee failed to produce evidence of the clients or the nature of the contract work, justifying the addition under section 69A. However, the Tribunal found the CIT(A)'s reasoning compelling, as the Assessing Officer did not consider withdrawals or provide evidence of the deposits being unexplained income.
Conclusions
The Tribunal concluded that the CIT(A) was correct in deleting the addition made by the Assessing Officer. The lack of evidence to treat the entire cash deposits as unexplained income meant the addition was not justified.
SIGNIFICANT HOLDINGS
Preserve Verbatim Quotes of Crucial Legal Reasoning
The Tribunal noted: "There exists no evidence to treat the entire cash deposit made by the Appellant as his income. When the withdrawals are considered the closing balance is nearly minimum. Obviously, this established the fact that the Appellant is performing some kind of work relating to his business."
Core Principles Established
The Tribunal reinforced the principle that unexplained deposits cannot be deemed income under section 69A without evidence of ownership or personal use. The decision emphasized the need for a fair assessment considering both deposits and withdrawals.
Final Determinations on Each Issue
The Tribunal dismissed the appeal filed by the Revenue, upholding the CIT(A)'s decision to delete the addition of 2,92,16,317/- as unexplained income under section 69A of the Act for the assessment year 2011-12.
Addition u/s 69A - cash deposits in the assessee's bank accounts constituted unexplained income - HELD THAT:- As rightly pointed out by the CIT(A) in the impugned order that there is no benefit given to the withdrawals and no verification has been done in that regard whether the said withdrawals were utilized for personal benefit of the assessee.
AO failed to conduct an examination in this regard to arrive at correct income of the assessee.
AO however, proceeded to add entire cash deposit as income of the assessee, without there being any benefit to the withdrawals, in our opinion, is not justified.
We find the assessee filed original return of income declaring a total income of ₹. 7,72,241/- and in response to the notice under section 148 of the Act, declared income of ₹. 31,51,430/-. The break-up of the said income is reflected in impugned order. On examination of the same, the assessee stated to have been earned income from salary, income from other sources and income from business.
CIT(A) was of the opinion that there was no evidence brought on record by the Assessing Officer to bring entire cash deposits as income of the assessee chargeable to tax. In view of the same, we find no infirmity in the order of the CIT(A) and it is justified. Thus, the grounds raised by the Appellant-Revenue are dismissed.
The core legal questions considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS
Suppression of Sales
Inflated Commission Expenditure
SIGNIFICANT HOLDINGS
In conclusion, the Tribunal dismissed all appeals by the revenue and the cross objections by the assessee as infructuous, emphasizing the importance of evidence and proper procedure in tax assessments.
Addition made on account of suppression of sales - differences between the sales of tickets as per books of accounts and various other parameters - differences between the sales of tickets as per books of accounts and various other parameters - CIT(A) deleted addition - HELD THAT:- Since the sales were done electronically online then if the same has been received in some bank account, then how the same was accounted for in the books of accounts. If the sales were received in a separate bank account, then the same has not been brought on record.
The receipt of suppressed sales in a different bank account is not possible since the entire payment towards sale will be credited in a single bank account and it is not possible to receive the proceeds of sales in 2 separate bank accounts.
The data taken from IATA has been compared with Busy data, but the IATA data was never provided at any stage to the assessee. The addition in respect of ADM (Agency Debit Memo) has been made based upon entirely incorrect understanding of facts. ADM is an expense for the company and is not in the nature of income.
Hence if the contention of the ld AO is accepted, then difference between ADMS entries found in IATA and not recorded in Busy software would result in increase of expenditure and not sales. This itself proves the fallacy in understanding of the entire gamut of the case by the ld AO and also proves that the additions have been made without any cogent material and without any basis.
There is no dispute that the ld AO during assessment proceedings has not carried out any independent investigation and solely relied upon the appraisal report for making the addition and no details regarding mode and method of computation of suppressed sales are available, the same has been confirmed in the remand report furnished.
In the absence of basic details like the method and mode of computation and PNR wise details of suppression of sales and absence of mode of receipt of the alleged suppressed sales, the addition made is not justified.
No infirmity in the order of the CIT-A deleting the additions made on account of alleged suppression of sales for all the years under consideration.
Disallowance on account of inflated commission expenditure - CIT(A) deleted addition - HELD THAT:- It is not the case of the ld AO that the commission was paid to related persons, or the company received back the commission paid in form of cash or the commission paid was not genuine or bogus. The only allegation is that the commission paid in excess of 10% is not justified. No basis was reflected by the ld AO even to arrive at the Arm’s length rate of commission at 10% or 5%, as the case may be. It is pertinent to note that the commission percentage obviously would vary from party to party depending upon the volume of sales sourced by the said agents. The rate at which commission is to be paid is solely the prerogative of the company if the same is not bogus. In this case, the genuineness has not been challenged by the department. Hence the ld AO was not justified in holding that commission expenditure upto 10% would be at Arm’s length and any percentage over and above the same, would be excessive or unreasonable. Either way, the business prudence need to be looked into from the point of view of the businessman and not from the point of view of the revenue. The law is very well settled on this aspect by the decision of Hon’ble Supreme Court in the case of CIT vs Dhanrajgiri Raja Narasingirji reported in 91 ITR 544 (SC). Further no deduction was claimed towards commission expenditure and hence there is no question of any disallowance thereon. No infirmity in the order of the ld CITA deleting the additions.
All the appeals of the revenue are dismissed.
The core legal issue considered in this judgment was whether the addition of Rs. 4,75,00,000/- to the assessee's income as unexplained share capital and share premium by the Assessing Officer (AO) was justified. This involved examining whether the identity, genuineness, and creditworthiness of the transactions relating to the share capital and premium were sufficiently explained and whether the deletion of this addition by the Commissioner of Income Tax (Appeals) [CIT(A)] was correct.
ISSUE-WISE DETAILED ANALYSIS
1. Relevant Legal Framework and Precedents
The legal framework primarily involved Section 68 of the Income Tax Act, 1961, which deals with unexplained credits. The precedents considered included the Supreme Court decisions in the cases of Lovely Exports Pvt Ltd and Divine Leasing, which established principles regarding the treatment of share capital as unexplained income. Additionally, the judgment also referenced the case of Jaya Securities Ltd vs. CIT by the Allahabad High Court, which supported the non-addition of share capital as unexplained income in similar circumstances.
2. Court's Interpretation and Reasoning
The Tribunal noted that the CIT(A) had deleted the addition based on the identity and regular filing of income tax returns by the shareholders. The CIT(A) found that the shareholders were companies with PANs, and the transactions were routed through bank accounts and recorded in the books of accounts, which were statutorily audited. The Tribunal agreed with the CIT(A) that the AO did not conduct further inquiries regarding the shareholders despite having all the relevant details, thus implicitly accepting their identity.
3. Key Evidence and Findings
The CIT(A) based its decision on the evidence that the shareholders were registered companies regularly filing their returns, and the transactions were properly recorded and audited. The Tribunal found no incriminating documents during the search under Section 132 of the Act, which could justify the addition made by the AO.
4. Application of Law to Facts
The Tribunal applied the precedents from the Supreme Court and the Allahabad High Court, which supported the non-addition of share capital as unexplained income when the identity of the shareholders is established, and no incriminating evidence is found. The Tribunal found that the CIT(A) correctly applied these principles in deleting the addition.
5. Treatment of Competing Arguments
The Tribunal considered the arguments of the Departmental Representative, who supported the AO's addition, and the Authorized Representative for the assessee, who defended the CIT(A)'s deletion of the addition. The Tribunal found the latter's arguments more convincing, given the lack of incriminating evidence and the established identity of the shareholders.
6. Conclusions
The Tribunal concluded that the CIT(A) was correct in deleting the addition of Rs. 4,75,00,000/- as unexplained share capital and premium. The Tribunal declined to interfere with the CIT(A)'s order, as it was consistent with the legal precedents and the evidence on record.
SIGNIFICANT HOLDINGS
The Tribunal upheld the CIT(A)'s decision, emphasizing the legal principle that no addition under Section 68 can be made in respect of share capital if the identity of the shareholders is established and no incriminating evidence is found. The Tribunal cited the Supreme Court's decision in Lovely Exports Pvt Ltd, stating, "No addition under section 68 could be made in respect of the subscription amount towards the share capital of a company Limited by shares whether it is private or public..." This principle was crucial in affirming the CIT(A)'s deletion of the addition.
The Tribunal's final determination was to dismiss the Revenue's appeal, thereby upholding the CIT(A)'s order and rejecting the addition made by the AO. This decision reinforced the necessity of substantive evidence for additions under Section 68, particularly concerning share capital and premium.
Assessment u/s 153A - Unexplained share capital - CIT(A) deleted addition - HELD THAT:- No material has been brought for our consideration to interfere with the impugned order of the Ld. CIT(A) on merits.
CIT(A) has relied on the order in the case of Lovely Exports Pvt Ltd [2008 (1) TMI 575 - SC ORDER] and in the case of Divine Leasing [2007 (11) TMI 627 - SC ORDER] CIT(A) has also relied on the order of the Hon'ble Jurisdictional Allahabad High Court in the case of Jaya Securities Ltd Vs. CIT [2007 (5) TMI 552 - HIGH COURT OF ALLAHABAD]
Whether any addition can be made in the absence of incriminating material found in the course of search u/s 132 - The matter is covered in favour of the assessee by precedents in the case of PCIT vs Abhisar Buildwell (P.) Ltd. [2023 (4) TMI 1056 - SUPREME COURT] and Smt Shashi Agarwal [2024 (10) TMI 533 - ITAT LUCKNOW] as there is material on record to indicate that addition made by the AO was based on incriminating material found in the course of search u/s 132 of the Act. Appeal of Revenue stands dismissed.
The core legal issue considered in this judgment is whether the proviso to Section 2(15) of the Income Tax Act, 1961 disentitles the assessee from availing exemption under Sections 11 and 12 of the Act. This involves determining if the activities of the assessee fall within the ambit of 'charitable purpose' as defined under the Act, particularly in light of the amendment to Section 2(15) by the Finance Act, 2008, effective from 01.04.2009.
ISSUE-WISE DETAILED ANALYSIS
1. Relevant Legal Framework and Precedents:
Section 2(15) of the Income Tax Act defines "charitable purpose" to include relief of the poor, education, medical relief, and the advancement of any other object of general public utility. The proviso introduced by the Finance Act, 2008, specifies that the advancement of any other object of general public utility shall not be considered a charitable purpose if it involves the carrying on of any activity in the nature of trade, commerce, or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration.
The Tribunal, High Court, and Supreme Court had previously recognized the assessee as a charitable institution entitled to exemption under Section 11, based on its objects and activities.
2. Court's Interpretation and Reasoning:
The Court examined whether the activities of the assessee, which involve providing infrastructure and facilities for the import/export of diamonds, fall within the ambit of trade, commerce, or business as per the proviso to Section 2(15). It was noted that the assessee was established as a non-profit entity with the primary object of promoting diamond exports, which had been recognized as charitable by higher judicial authorities.
The Court interpreted the proviso to Section 2(15) as being applicable only to entities carrying out activities in the nature of trade, commerce, or business for a fee or consideration. The Court emphasized that the proviso was not intended to affect genuine charitable organizations.
3. Key Evidence and Findings:
The assessee's activities were found to be consistent with its objects of promoting diamond trade, which had been previously recognized as charitable. The Court noted that the assessee provided services on a cost-recovery basis, without any profit motive, and that the receipts were reimbursements of costs incurred.
The Court also referred to the legislative intent behind the proviso, which aimed to prevent entities operating on commercial lines from claiming charitable status. The Court found that the assessee's activities did not fall within this mischief.
4. Application of Law to Facts:
Applying the legal framework to the facts, the Court concluded that the assessee's activities did not constitute trade, commerce, or business. The reimbursement of costs did not amount to consideration for services rendered in relation to trade or commerce. Therefore, the assessee's activities were not hit by the proviso to Section 2(15), and it remained entitled to exemption under Section 11.
5. Treatment of Competing Arguments:
The Court considered the Department's argument that the assessee's activities involved trade or commerce due to the receipts from members and non-members. However, the Court found that these receipts were merely cost reimbursements and did not constitute income from trade or commerce. The Court also noted that the principle of mutuality applied, as the assessee operated on a non-profit basis for the benefit of its members.
6. Conclusions:
The Court concluded that the assessee's activities were charitable in nature and not affected by the proviso to Section 2(15). The assessee was entitled to exemption under Section 11 of the Act.
SIGNIFICANT HOLDINGS
The Court held that the proviso to Section 2(15) does not apply to the assessee, as its activities do not involve trade, commerce, or business. The Court preserved the principle that genuine charitable organizations, which operate on a cost-recovery basis without a profit motive, are not affected by the proviso.
Core Principles Established:
The judgment reinforced the principle that the proviso to Section 2(15) is intended to exclude entities carrying out commercial activities under the guise of public utility from claiming charitable status. It clarified that entities operating on a cost-recovery basis for charitable purposes are not affected by the proviso.
Final Determinations:
The appeal was allowed, and the assessee was entitled to exemption under Section 11 of the Income Tax Act.
Proviso to Section 2(15) disentitles the assessee from availing exemption u/s. 11 and 12 or not? - determining if the activities of the assessee fall within the ambit of 'charitable purpose' or not? - as per DR since the assessee had generated income from activities, which are in the nature of trade and commerce and such receipts are not within the permissible limit in terms of proviso to Section 2(15) assessee is not entitled to claim exemption u/s. 11
HELD THAT:- It is an undisputed fact on record that the main objects of the assessee based on which registration was granted u/s. 12A of the Act and, which objects have been accepted to be of charitable nature up to the stage of Hon’ble Supreme Court in assessee’s case, have not undergone any change till date. Therefore, it has to be accepted that the assessee is a charitable organization existing for charitable purpose having the object of general public utility in terms of Section 2(15) of the Act.
A careful reading of the proviso clearly indicates that it applies only to ‘advancement of any other activities of general public utility’. Pertinently, the proviso introduced to Section 2(15) has undergone further changes subsequently. For the purpose of deciding the present appeal, the proviso as originally introduced by Finance Act, 2008 effective from 01.04.2009 would be relevant, as it applies to the assessment year under dispute.
Whether the assessee is either carrying on any trade, commerce or business or is rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration? - As could be seen from the main objects of the assessee, it is not in any manner involved in any activity of trade, commerce or business. There cannot be any doubt regarding this fact. Therefore, it is necessary to see whether the second condition of any activity of rendering any service in relation to any trade, commerce or business is applicable. Since the assessee itself is not carrying on any trade, commerce or business, it cannot be said that it is involved in any activity of rendering service in relation to any trade, commerce or business. The assessee merely provides a platform to importers/exporters of diamonds and precious stones to facilitate import/export activity seamless and less cumbersome to make the trade more competitive in international market. In sum and substance, the role of the assessee is akin to a trade promotion organization.
In the facts of the present appeal, admittedly, the receipts of the assessee are on account of reimbursement of cost. Further, the accounts of the assessee placed before us demonstrate that the cost recovery made by the assessee is as per cost without any excessive mark up. In fact, there is no such allegation even by the Assessing Officer. Therefore, assessee’s object of any other activity of general public utility would not fall within the vice of proviso to Section 2(15) of the Act.
We must observe, introduction of proviso to section 2(15) of the Act ipso facto would neither negate assessee’s existence for charitable purpose nor disqualify the assessee from enjoying exemption u/s. 11 of the Act.
Applicability of the proviso to Section 2(15) of the Act has to be examined factually based on material available on record to demonstrate that a particular assessee, though, is engaged in advancement of object of general public utility, however, it is engaged in the activity of trade or commerce or business or is providing service related to activity of trade commerce or business by charging cess or fee or any other consideration.
In the facts of the present appeal, no cogent material has been brought on record by the AO to demonstrate that the assessee is either involved in the activity of trade or commerce or business or is providing any service related to trade or commerce or business. Further, there is nothing on record to show that the assessee is charging any cess or fee or any other consideration, which is markedly excessive of the cost incurred.
We hold that the assessee is not hit by the proviso to Section 2(15) of the Act. As a natural corollary, assessee would be entitled for exemption u/s. 11 of the Act. Assessee appeal allowed.
The core legal questions considered in this judgment revolve around two primary issues:
1. Whether the Commissioner of Income Tax (Exemption), Pune, erred in canceling the provisional registration and rejecting the application for permanent registration under section 12A(1)(ac) of the Income Tax Act.
2. Whether the Commissioner of Income Tax (Exemption), Pune, erred in denying the application for approval under section 80G(5) of the Income Tax Act.
ISSUE-WISE DETAILED ANALYSIS
Issue 1: Cancellation of Provisional Registration and Rejection of Permanent Registration under Section 12A(1)(ac)
Relevant Legal Framework and Precedents: The legal framework involves section 12A(1)(ac) of the Income Tax Act, which pertains to the registration of trusts or institutions for tax exemptions. The process requires the applicant to demonstrate genuineness of activities and compliance with applicable laws.
Court's Interpretation and Reasoning: The Tribunal noted that the appellant had initially complied with the notice issued by the Commissioner but failed to respond to a subsequent notice. The appellant argued that insufficient time was provided to furnish the necessary information, and the Tribunal found merit in this argument, emphasizing the importance of providing a fair opportunity to present requisite documents.
Key Evidence and Findings: The appellant submitted that the Commissioner did not provide adequate opportunity to respond to the notice, which was crucial for the registration application. The Tribunal acknowledged the appellant's compliance with the initial notice and the short response time for the subsequent notice.
Application of Law to Facts: The Tribunal applied principles of natural justice, highlighting that the appellant should have been given a reasonable opportunity to submit required information. The Tribunal decided to set aside the Commissioner's order and remand the matter for reconsideration, ensuring the appellant is given a fair chance to present their case.
Treatment of Competing Arguments: The Tribunal balanced the appellant's request for additional time against the Commissioner's decision, ultimately siding with the appellant's need for a fair opportunity to comply with the notice requirements.
Conclusions: The Tribunal concluded that the order by the Commissioner was premature and remanded the case for fresh adjudication, directing the Commissioner to provide a reasonable opportunity for the appellant to submit necessary documents.
Issue 2: Denial of Approval under Section 80G(5)
Relevant Legal Framework and Precedents: Section 80G(5) of the Income Tax Act provides for approval of certain donations for tax deductions. Approval is contingent upon the institution's compliance with specific conditions.
Court's Interpretation and Reasoning: The Tribunal noted that the denial of approval under section 80G(5) was consequential to the rejection of registration under section 12A(1)(ac). Therefore, the Tribunal found it appropriate to remand this issue as well for reconsideration.
Key Evidence and Findings: The Tribunal recognized the interdependence of the registration and approval processes, implying that the outcome of the registration issue would directly impact the approval under section 80G(5).
Application of Law to Facts: The Tribunal applied the principle of consequential adjudication, determining that since the registration issue was remanded, the approval issue should also be reconsidered in light of the new findings.
Treatment of Competing Arguments: The Tribunal did not delve into detailed competing arguments for this issue, as it was inherently linked to the resolution of the registration matter.
Conclusions: The Tribunal concluded that the issue of approval under section 80G(5) should be remanded for fresh adjudication alongside the registration issue.
SIGNIFICANT HOLDINGS
Core Principles Established: The Tribunal reinforced the principle of natural justice, emphasizing the need for providing adequate opportunity to applicants to present their case. The decision also highlighted the interrelated nature of registration and approval processes under sections 12A(1)(ac) and 80G(5).
Final Determinations on Each Issue: The Tribunal set aside the orders of the Commissioner of Income Tax (Exemption), Pune, and remanded both issues for fresh adjudication. The Tribunal directed the Commissioner to provide a reasonable opportunity for the appellant to submit necessary documents and information, ensuring compliance with procedural fairness.
Verbatim Quotes of Crucial Legal Reasoning: "Considering the totality of the facts of the case & in the interest of justice and without going into the merits of the case, we deem it appropriate to set-aside the order passed by Ld. CIT, Exemption, Pune and remand the matter back to him with a direction to give one more opportunity to the assessee to file the requisite details and decide the application for registration afresh as per fact and law after providing reasonable opportunity of hearing to the assessee."
Rejection of application for registration in Form No.10AB under clause (iii) of section 12A(1)(ac) and sub-section (5) of section 80G - CIT(E) cancelling provisional Registration granted and rejecting to grant permanent Registration - HELD THAT:- We find that admittedly the assessee made compliance to the initial notice issued by Ld. CIT, Exemption, Pune, but the subsequent notice could not be answered by him. It is the sole contention of Ld. AR that if the assessee has not furnished requisite information/documents on the requisite date, one further opportunity should have been provided to him by Ld. CIT, Exemption, Pune, since only 7 days time was allowed to respond against the notice.
We find some force in the arguments of Ld. AR & therefore considering all, we deem it appropriate to set-aside the order passed by Ld. CIT, Exemption, Pune and remand the matter back to him with a direction to give one more opportunity to the assessee to file the requisite details.
The core legal issue considered in this judgment was whether the rejection of the application for registration under section 12AA of the Income Tax Act by the CIT, Exemption, Pune, due to an inadvertent error in the application form, was justified. The Tribunal also considered whether the mistake in the application could be rectified and whether the assessee trust should be given another opportunity to submit the correct application.
ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents
The legal framework revolves around section 12A of the Income Tax Act, which deals with the registration of trusts for tax exemption purposes. Specifically, the issue pertains to the subsections of section 12A(1)(ac), which outline the procedural requirements for applying for registration. The Tribunal referenced precedents from similar cases, including decisions in "Shree Swaminarayan Gadi Trust vs. CIT" and "Raj Krishan Jain Charitable Trust," where similar errors in application forms were deemed rectifiable.
Court's Interpretation and Reasoning
The Tribunal interpreted the error in the application as a typographical or inadvertent mistake, which should not, by itself, lead to the rejection of the application. The Tribunal emphasized that the purpose of section 12A is to ensure the genuineness of the trust's activities and compliance with relevant laws, rather than to penalize technical mistakes in application forms.
Key Evidence and Findings
The key evidence presented was that the assessee trust was already registered under section 12A since 1974, indicating its longstanding compliance and genuine operations. The Tribunal noted that the application was filed without professional assistance, which contributed to the error. Additionally, the Tribunal considered the precedents where similar errors were corrected by allowing the filing of a revised application.
Application of Law to Facts
The Tribunal applied the principles established in previous cases to the current facts, determining that the error in the application was curable. The Tribunal found that the trust had filed the application under the wrong clause due to a mistake and that this should not prevent consideration of the application on its merits.
Treatment of Competing Arguments
The Tribunal considered the arguments from both sides. The appellant argued for leniency due to the inadvertent error, while the respondent supported the CIT's decision to reject the application based on procedural grounds. The Tribunal favored the appellant's argument, emphasizing the importance of substantive justice over procedural technicalities.
Conclusions
The Tribunal concluded that the rejection of the application based solely on a typographical error was unjustified. It decided to remand the matter back to the CIT, Exemption, Pune, with instructions to treat the application as filed under the correct clause and to provide the assessee trust with an opportunity to present its case.
SIGNIFICANT HOLDINGS
Preserve Verbatim Quotes of Crucial Legal Reasoning
The Tribunal stated, "In consonance with the decision rendered by the co-ordinate Bench, the typographical error deserves to be corrected. Accordingly, the appeal deserves to be allowed and impugned order... is liable to be set aside."
Core Principles Established
The Tribunal established that typographical or inadvertent errors in application forms for registration under section 12A should not lead to outright rejection if the trust's activities are genuine and compliant with the law. The Tribunal emphasized the importance of allowing applicants to correct such errors to ensure substantive justice.
Final Determinations on Each Issue
The Tribunal set aside the CIT's order rejecting the application and remanded the matter for fresh adjudication. It directed the CIT to consider the application under the correct clause and to provide the assessee trust with an opportunity to present supporting documents and evidence. The Tribunal also instructed the assessee to respond promptly to notices from the CIT to facilitate the process.
Rejecting the application for registration u/s 12AA - application was furnished u/s 12A(1)(ac)(vi)(B) of the IT Act instead of u/s 12A(1)(ac)(iii) - HELD THAT:- We find that admittedly, the assessee trust was required to file application under clause (iii) of section 12A(1)(ac) of the IT Act but due to inadvertent error the application was filed under clause (vi) of section 12A(1)(ac) of the IT Act and for this reason alone Ld. CIT, Exemption, Pune rejected its application for registration. We find that under identical situations, a Co-ordinate Bench of this Tribunal in the case of Raj Krishan Jain Charitable Trust [2024 (6) TMI 1400 - ITAT DELHI] held that the typographical error deserves to be corrected. Accordingly, the appeal deserves to be allowed.
Thus, we deem it proper to set-aside the order passed by Ld. CIT, Exemption, Pune and remand the matter back to him with a direction to treat the application already filed by the assessee as under clause (iii) of section 12A(1)(ac) of the IT Act instead of under clause (vi) of section 12A(1)(ac) of the IT Act and decide the same as per fact and law after providing reasonable opportunity of hearing to the assessee. Appeal filed by the assessee is allowed for statistical purposes.
The core legal questions considered in this judgment were:
ISSUE-WISE DETAILED ANALYSIS
Issue 1: Rejection of Registration under Section 12A
Relevant legal framework and precedents:
The application for registration under Section 12A is governed by the provisions of Section 12AA of the Income Tax Act, which requires the verification of the genuineness of the objects and activities of the trust or institution.
Court's interpretation and reasoning:
The Tribunal noted that the CIT(Exemption) did not provide adequate opportunity to the assessee to present its case. The Tribunal observed a typographical error in the CIT(E)'s findings, which acknowledged the charitable activities of the assessee but still rejected the application.
Key evidence and findings:
The assessee had furnished several documents and evidence to establish the genuineness of its activities, which were not adequately considered by the CIT(E).
Application of law to facts:
The Tribunal emphasized the importance of providing a reasonable and adequate opportunity for the assessee to be heard, which was not afforded by the CIT(E).
Treatment of competing arguments:
The Tribunal considered the arguments from both sides, noting the assessee's contention that sufficient evidence was provided to demonstrate the genuineness of the trust's activities.
Conclusions:
The Tribunal restored the appeal to the file of the CIT(E) with directions to rehear and consider all submitted documents after affording a reasonable opportunity to the assessee.
Issue 2: Rejection of Approval under Section 80G(5)
Relevant legal framework and precedents:
The application for approval under Section 80G(5) involves compliance with the provisions regarding the timing of the application and the genuineness of the activities.
Court's interpretation and reasoning:
The Tribunal referenced a similar case decided by the Kolkata ITAT, which held that institutions granted provisional registration could apply for final registration without being barred by the commencement of activities prior to provisional approval.
Key evidence and findings:
The Tribunal found that the CIT(E) misconstrued the provisions and CBDT Circulars regarding the timing of applications for approval.
Application of law to facts:
The Tribunal applied the rationale from the Kolkata ITAT decision, concluding that the assessee's application was within the limitation period after the grant of provisional registration.
Treatment of competing arguments:
The Tribunal considered the arguments from both sides, particularly the assessee's contention that the application was timely and that the six-month requirement was impractical given the circumstances.
Conclusions:
The Tribunal set aside the issue of 80G(5) approval to the CIT(E) with directions not to consider the non-filing of the application within six months of commencement as an impediment, contingent on the outcome of the Section 12A registration.
SIGNIFICANT HOLDINGS
Preserve verbatim quotes of crucial legal reasoning:
"In the interest of justice and fair play, we deem it fit to restore the appeal to the file of the CIT(E). The CIT(E) is directed to rehear and consider all the documents submitted along with the application after affording a reasonable and adequate opportunity of being heard to the assessee."
Core principles established:
The Tribunal emphasized the necessity of providing a fair opportunity for the assessee to present its case and the importance of correctly interpreting legal provisions and circulars regarding application timelines.
Final determinations on each issue:
The appeals were allowed for statistical purposes, with the matters being remanded back to the CIT(E) for fresh consideration in light of the Tribunal's observations.
Rejecting application for registration u/s 12Aand approval u/s 80G(5) - objects and activities of the trust or institution not proved - HELD THAT:- We are of the view that there is some typographical error in the findings of the CIT(E) where she accepted the charitable activities of the assessee.
We are of the view that the CIT(E) has not given sufficient time to assessee to present its case. The assessee has furnished several documents and evidences before us to establish the genuineness of the activities of the trust.
CIT(E) ought to have given a reasonable and adequate opportunity of being heard to the assessee. Therefore, in the interest of justice and fair play, we deem it fit to restore the appeal to the file of the CIT(E).
CIT(E) is directed to rehear and consider all the documents submitted along with the application after affording a reasonable and adequate opportunity of being heard to the assessee. The ground of the appeal is allowed for statistical purpose.
Application for registration u/s 80G(5)(iii) of the Act of the assessee was rejected by the ld. CIT(E) as non-maintainable as the same has not been filed with six months of commencement of activities - As relying on Tomorrow’s Foundation [2024 (3) TMI 941 - ITAT KOLKATA] we allow the appeal of the assessee for grant of approval u/s 80G(5) if otherwise the assessee is eligible. We are however of the view that as we have already set aside the issue of grant of Registration u/s 12A to the file of the CIT(E) for a fresh determination regarding genuineness of the Trust activity, we deem it fit to set aside this issue of 80G(5) approval also to the file of the CIT(E) with a direction to the ld. CIT(E) not to consider the non-filing of application within 6 months of commencement of activities be an impediment in granting registration u/s 80G of the Act. The ground of appeal is allowed for statistical purpose.
The primary legal issues considered in this judgment are:
ISSUE-WISE DETAILED ANALYSIS
Detention and Confiscation of Gold Bars
Entitlement to 'Free Allowance'
Communication of Order in Original
SIGNIFICANT HOLDINGS
Confiscation - penalty under Section 112 of the Customs Act, 1962 - denial of free allowance - eligible passenger under Notification No. 50/2017-Cus - service of notices by email - Section 153 of the Customs Act, 1962 - custody and release of seized goods
Confiscation - penalty under Section 112 of the Customs Act, 1962 - denial of free allowance - eligible passenger under Notification No. 50/2017-Cus - custody and release of seized goods - Challenge to the detention and subsequent Order in Original dated 29.02.2024 authorising denial of free allowance, declaration of eligibility, absolute confiscation of the seized gold bars and imposition of penalty. - HELD THAT: - The High Court recorded that a detailed Order in Original dated 29.02.2024 has been passed by the Customs authority and placed on record. The operative order denies any free allowance, declares the passenger an eligible passenger for purposes of Notification No. 50/2017-Cus read with the Baggage Rules, 2016, orders absolute confiscation of the two gold bars recovered and imposes a penalty under the Customs Act, 1962. Having considered the matter and on receipt of the Order in Original by the petitioner through learned counsel, the Court did not interfere with the impugned order in exercise of writ jurisdiction and disposed of the petition, while leaving the petitioner free to pursue statutory remedies available under law. [Paras 5]
The petition challenging detention and the Order in Original was disposed of without interference with the confiscation and penalty recorded in the Order in Original dated 29.02.2024; petitioner permitted to pursue statutory remedies.
Service of notices by email - Section 153 of the Customs Act, 1962 - Obligation of the Customs Department to effect service of notices, communications and orders through email in addition to traditional methods. - HELD THAT: - The Court reiterated the direction in Bonanza Enterprises that, to avoid ex parte proceedings and improper service, the Customs Department ought to send notices and orders by email to the address provided by the party and also upload communications on the common portal as envisaged under Section 153. The Court expected the Customs Department to adhere to these directions and recorded that the Order in Original had been communicated by speed post but the petitioner received the order only on the date of hearing. In view of the communication lapse, the Court granted the petitioner thirty days to avail of remedies in accordance with law. [Paras 6, 7]
Customs directed to follow email service and portal upload in addition to traditional means; petitioner granted thirty days to pursue remedies.
Final Conclusion: The writ petition was disposed of; the Customs Order in Original dated 29.02.2024 (denying free allowance, declaring eligibility, ordering absolute confiscation and imposing penalty) was not interfered with by the Court, while the Customs Department was directed to effect service by email in addition to traditional methods and the petitioner was granted thirty days to avail statutory remedies.
The primary legal questions considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS
Seizure of Gold Chains
The relevant legal framework includes the Customs Act, 1962, specifically sections 111(d), 111(j), and 111(m), which govern the confiscation of goods. The Baggage Rules, 2016, as amended, and Notification No. 50/2017-Customs, also play a crucial role in determining the rights of passengers regarding personal effects.
The Court noted that the Petitioner, a minor and a non-resident, was traveling to India for a family wedding, and the seized gold chains were personal effects worn since childhood. The adjudicating authority's order to seize the items was based on the failure to declare the goods at the Red Channel. However, the Court found that the items constituted personal effects and should not have been seized.
In applying the law to the facts, the Court emphasized the Petitioner's status as an eligible passenger under the Baggage Rules, 2016, which should have exempted her personal jewellery from confiscation.
Procedural Requirements
The Court examined whether the procedural requirements of issuing a show cause notice and providing a personal hearing were adhered to. The adjudicating authority acknowledged that no show cause notice was issued, and no personal hearing was conducted, as the Petitioner had requested a waiver of these rights.
The Court, referencing previous judgments, highlighted that such waivers are not in accordance with the law, citing cases like Amit Kumar v. The Commissioner of Customs and Mohamed Shamiuddeen v. Commissioner of Customs & Ors., which underscore the necessity of following due process.
SIGNIFICANT HOLDINGS
The Court quashed the impugned order dated 7th November, 2024, passed by the adjudicating authority, with significant legal reasoning as follows:
The core principles established include the reaffirmation of the rights of eligible passengers under the Baggage Rules, 2016, and the necessity of adhering to procedural requirements such as issuing show cause notices and providing personal hearings. The judgment reinforces the protection of personal effects from unlawful seizure, particularly when due process is not followed.
Seizure of the gold chain from the Petitioner by the Customs authorities was justified under the Customs Act, 1962 and the Baggage Rules, 2016 - denial of free allowance - eligible passenger in terms of the Notification No. 50/2017-Customs dated 30th June, 2017 (as amended) read with Baggage Rules, 2016 (as amended) - confiscation - redemption fine - penalty - violation of principles of natural justice - HELD THAT:- A photograph of the Petitioner wearing the said jewellery has been placed on record. The wedding card of the Petitioner, showing the date of marriage as 21st April, 2024 has also been placed on record. A perusal of the photograph along with the wedding card would itself show that the Petitioner is a bona fide passenger who was travelling to India to attend a wedding ceremony.
It is not in dispute as has been recorded by the adjudicating authority that the Petitioner himself is a UAE resident with a proper resident ID. The gold chain has been valued at Rs. 1,76,488/- - The Petitioner being a non-resident is fully entitled to the benefit provided to an eligible passenger under the Baggage Rules, 2016. The goods constitute personal effects of the Petitioner and could not have been seized in the manner the Custom authorities have.
This Court has now pronounced several orders/judgments, following various judgments of the Supreme Court and this Court, wherein it has been held clearly that if the gold items seized are personal jewellery, the same would not be liable to be confiscated.
Moreover, in the present case, a show cause notice has not been issued to the Petitioner and no personal hearing has been afforded.
Conclusion - i) The impugned order dated 7th November, 2024 passed by the adjudicating authority is accordingly quashed. ii) No penalty or redemption fine shall be collected from the Petitioner. No warehousing charges shall also be liable to be collected from the Petitioner. The charges, if any, already deposited shall be refunded to the Petitioner.
Petition disposed off.
The core legal questions considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS
Seizure of Gold Chain
Lack of Show Cause Notice and Personal Hearing
SIGNIFICANT HOLDINGS
Seizure of the gold chain from the Petitioner by the Customs authorities was justified under the Customs Act, 1962 and the Baggage Rules, 2016 - denial of free allowance - eligible passenger in terms of the Notification No. 50/2017-Customs dated 30th June, 2017 (as amended) read with Baggage Rules, 2016 (as amended) - confiscation - redemption fine - penalty - violation of principles of natural justice - HELD THAT:- A photograph of the Petitioner wearing the said jewellery has been placed on record. The wedding card of the Petitioner, showing the date of marriage as 21st April, 2024 has also been placed on record. A perusal of the photograph along with the wedding card would itself show that the Petitioner is a bona fide passenger who was travelling to India to attend a wedding ceremony.
It is not in dispute as has been recorded by the adjudicating authority that the Petitioner himself is a UAE resident with a proper resident ID. The gold chain has been valued at Rs. 1,76,488/- - The Petitioner being a non-resident is fully entitled to the benefit provided to an eligible passenger under the Baggage Rules, 2016. The goods constitute personal effects of the Petitioner and could not have been seized in the manner the Custom authorities have.
This Court has now pronounced several orders/judgments, following various judgments of the Supreme Court and this Court, wherein it has been held clearly that if the gold items seized are personal jewellery, the same would not be liable to be confiscated.
Moreover, in the present case, a show cause notice has not been issued to the Petitioner and no personal hearing has been afforded.
Conclusion - i) The impugned order dated 7th November, 2024 passed by the adjudicating authority is accordingly quashed. ii) No penalty or redemption fine shall be collected from the Petitioner. No warehousing charges shall also be liable to be collected from the Petitioner. The charges, if any, already deposited shall be refunded to the Petitioner.
Petition disposed off.
The Court considered two primary issues:
1. Whether the Show Cause Notices were issued beyond the prescribed period of limitation, which is three years, and if so, whether this affects the validity of the impugned Order-in-Original.
2. Whether the issue of limitation was adequately considered in the impugned Order-in-Original.
ISSUE-WISE DETAILED ANALYSIS
Issue 1: Limitation Period for Issuance of Show Cause Notices
Relevant Legal Framework and Precedents: The Petitioner argued that the Show Cause Notices were issued beyond the three-year limitation period. The Petitioner relied on precedents from the Gujarat High Court, which quashed Show Cause Notices issued beyond the limitation period in cases involving actual exporters.
Court's Interpretation and Reasoning: The Court noted that the Petitioner, a Chartered Accountant, was not the actual exporter but was providing services to the exporter. The Court distinguished the present case from the Gujarat High Court cases, as those involved actual exporters directly challenging the delay in issuance of Show Cause Notices.
Key Evidence and Findings: The Department alleged that the Petitioner was involved in producing fraudulent documents to claim duty drawbacks, earning a commission of 1% of the invoice value. The impugned Order-in-Original found the Petitioner guilty under Section 114AA of the Customs Act, 1962, for knowingly using false documents.
Application of Law to Facts: The Court determined that the factual nature of the allegations against the Petitioner, who was not the actual exporter, warranted a different approach. The Court emphasized that the Petitioner should pursue an appellate remedy where such factual and legal issues could be thoroughly examined.
Treatment of Competing Arguments: The Court acknowledged the Petitioner's reliance on Gujarat High Court judgments but highlighted the distinction in the Petitioner's role as a service provider rather than an exporter. The Court suggested that the appellate process was more suitable for addressing these complex issues.
Conclusions: The Court concluded that the Petitioner should be relegated to the appellate remedy under Section 128 of the Customs Act, 1962, where the limitation issue and other objections could be adequately addressed.
Issue 2: Consideration of Limitation in the Impugned Order
Relevant Legal Framework and Precedents: The Petitioner contended that the limitation issue was not considered in the impugned Order-in-Original. The relevant legal framework involves procedural fairness and the requirement for orders to address all pertinent issues raised by the parties.
Court's Interpretation and Reasoning: The Court did not delve into the merits of whether the limitation issue was considered in the Order-in-Original. Instead, it focused on the availability of an appellate remedy where such procedural concerns could be raised and adjudicated.
Key Evidence and Findings: The Court did not make specific findings on this issue, as it deferred to the appellate process for a comprehensive examination of all procedural and substantive issues.
Application of Law to Facts: The Court applied the principle that appellate bodies are well-suited to address procedural omissions or errors in initial orders. The availability of an appeal under Section 128 of the Customs Act was deemed sufficient to address the Petitioner's concerns.
Treatment of Competing Arguments: The Court did not engage in detailed analysis of the competing arguments regarding procedural fairness, as it directed the Petitioner to pursue an appeal where such arguments could be fully explored.
Conclusions: The Court concluded that the Petitioner should raise the issue of limitation and any related procedural concerns before the Appellate Authority, which is equipped to adjudicate such matters.
SIGNIFICANT HOLDINGS
Core Principles Established: The Court established that factual and procedural issues, particularly those involving allegations of fraud and the issuance of Show Cause Notices, are best addressed through the appellate process. The Court emphasized the importance of utilizing statutory remedies before seeking judicial intervention.
Final Determinations on Each Issue: The Court determined that the Petitioner should avail of the appellate remedy under Section 128 of the Customs Act, 1962, to challenge the Order-in-Original and raise all objections, including those related to limitation. The Court did not examine the merits of the limitation issue or the procedural fairness of the Order-in-Original.
The petition was disposed of with the liberty to the Petitioner to pursue appellate remedies, and all pending applications were accordingly disposed of.
Time limitation for issuance of SCN - SCN was issued beyond the prescribed period of limitation which is three years - HELD THAT:-The Petitioner is a Chartered Accountant who is stated to have assisted the main accused in producing false and fabricated documents in return for receiving 1% of the invoice value. The allegations being serious and factual in nature, this Court in writ jurisdiction would not be able to examine the said factual aspects. Secondly, insofar as the judgment of the Gujarat High Court is concerned, the challenge therein was to the belated issuance of the Show Cause Notice itself and the Show Cause Notices were quashed by the Gujarat High Court at the instance of the actual exporters. In the present case, Petitioner is not the actual exporter but a Chartered Accountant who is providing services to the actual exporter.
Under these circumstances, this Court is of the opinion that the Petitioner deserves to be relegated to avail of the appellate remedy. Under Section 128 of the Customs Act, 1962, the order is appealable before the Commissioner (Appeals) - the Petitioner may file an appeal in accordance with law challenging the Order-in-Original before the appropriate Appellate Authority.
Conclusion - i) The Petitioner should avail of the appellate remedy under Section 128 of the Customs Act, 1962, to challenge the Order-in-Original and raise all objections, including those related to limitation. ii) The Court did not examine the merits of the limitation issue or the procedural fairness of the Order-in-Original.
Petition disposed off.
The primary issues considered in this judgment are:
ISSUE-WISE DETAILED ANALYSIS
Detention of Goods Without Show Cause Notice or Order-in-Original
The legal framework governing this issue involves the provisions under the Customs Act, which mandate the issuance of a Show Cause Notice within a prescribed period, usually six months, in cases of detention of goods. The Court noted that the Customs Authorities failed to issue a Show Cause Notice or serve the Order-in-Original to the Petitioner, which is a procedural lapse.
The Court interpreted the absence of a Show Cause Notice and the lack of service of the Order-in-Original as a violation of the Petitioner's rights. The Court emphasized that procedural fairness requires that an individual be informed of the reasons for the detention of their goods and be given an opportunity to respond.
The evidence presented showed that the Petitioner was not served with any Order-in-Original, and no personal hearing was granted. This lack of compliance with procedural requirements led the Court to conclude that the detention was unjustified.
Entitlement to Release or Compensation
The Court applied the law to the facts by determining that since the Customs Authorities did not follow the due process, the Petitioner is entitled to the release of the detained goods. The Court also considered the possibility that the goods might have been disposed of and, therefore, directed that if the goods are no longer available, the market value of the goods as of the current date should be paid to the Petitioner.
Competing arguments from the Customs Authorities regarding the procedural delays were not found sufficient to justify the continued detention of the goods. The Court concluded that the Petitioner should not be penalized for the administrative lapses of the Customs Authorities.
Compliance with Previous Court Order
The Court noted that the Customs Authorities failed to comply with the previous court order directing them to serve the Order-in-Original to the Petitioner. This non-compliance further supported the Court's decision to order the release of the goods.
The Court reasoned that repeated non-compliance with court orders undermines the rule of law and the administration of justice. The Court emphasized that the Petitioner should not be forced to repeatedly approach the Court to obtain a copy of the order.
SIGNIFICANT HOLDINGS
The Court held that the detention of the Petitioner's goods without issuing a Show Cause Notice or serving an Order-in-Original was unjustified. The Court ordered the release of the goods to the Petitioner and waived any warehouse charges. The Court also provided for compensation in the form of the market value of the goods if they have been disposed of, with the stipulation that interest would be payable if the compensation is not paid within four weeks.
Key principles established include the requirement for procedural fairness in the detention of goods and the obligation of authorities to comply with court orders. The Court's final determination was to quash the detention and order the release of the goods or compensation to the Petitioner.
Release of detained goods - Quashing of detention - Non-service of order-in-original / Show Cause Notice - Obligation to comply with court directions - Waiver of warehouse/storage charges - Payment of market value in lieu of released goods - Interest on delayed payment - Writ jurisdiction under Articles 226 and 227
Non-service of order-in-original / Show Cause Notice - Obligation to comply with court directions - Writ jurisdiction under Articles 226 and 227 - Release of detained goods - Quashing of detention - Detention of the petitioner's goods was quashed and the goods ordered released because no show cause notice/order-in-original was served and the Customs authority failed to comply with the Court's earlier direction. - HELD THAT: - The Court found that the prescribed six-month period for issuance of a Show Cause Notice had elapsed, that no personal hearing was afforded to the petitioner and that, despite an earlier Division Bench direction to forward a copy of any order-in-original, the Customs authorities had not served such order. The non-service and the failure to comply with the earlier direction rendered continued detention unsustainable. In the exercise of writ jurisdiction under Articles 226 and 227, the detention was quashed and the goods were ordered to be released; warehouse charges were waived as part of the relief. [Paras 7, 9]
Detention quashed; goods to be released to the petitioner and warehouse charges waived.
Payment of market value in lieu of released goods - Interest on delayed payment - If the detained goods have been disposed of, the petitioner is to be paid the market value prevailing on the date of the order within four weeks; statutory interest applies if payment is delayed beyond that period. - HELD THAT: - The Court provided a practical remedy where physical release is impossible because the goods have been disposed of: the Customs authority must pay the market value of the detained goods as per prevailing market rates within four weeks. If the market-value payment is made within that period, no interest is payable; otherwise, interest at the statutory rate shall run from the date of detention until payment. [Paras 10]
If goods disposed, pay market value within four weeks (no interest if timely); otherwise statutory interest from date of detention.
Final Conclusion: Writ petition allowed: detention quashed and goods ordered released with waiver of warehouse charges; alternatively, if goods have been disposed, market-value compensation to be paid within four weeks, failing which statutory interest will accrue.
The primary legal questions considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS
1. Justification of CESTAT's Decision to Set Aside the Penalty
Relevant Legal Framework and Precedents: The appeal was filed under Section 130 of the Customs Act, 1962, which allows appeals on substantial questions of law. The Tribunal's decision was challenged on the grounds that it lacked sufficient reasoning. The legal framework emphasizes the necessity for a reasoned order, especially when a penalty is set aside.
Court's Interpretation and Reasoning: The Tribunal's decision was based on the lack of corroborative evidence to support the inculpatory statement made by the Director of the company. The Tribunal found that the retraction of the statement was not adequately considered by the Adjudicating Authority, thereby necessitating independent corroboration.
Key Evidence and Findings: The Tribunal noted that the value declared was not in doubt, and the statement made by the Director was retracted. The Tribunal emphasized that the statement could not be accepted without corroboration, especially since the adjudicating authority and investigating officers were not privy to the contents of the goods.
Application of Law to Facts: The Tribunal applied the principles from the Supreme Court decision in K.I. Pavunny v. Assistant Collector, which allows reliance on a retracted confession only when corroborated by other evidence. The Tribunal found that the lack of corroborative evidence meant that the penalty could not be sustained.
Treatment of Competing Arguments: The Tribunal considered the arguments from both sides, including the reliance on previous judgments and the necessity for corroboration of retracted statements. The Tribunal ultimately found that the lack of independent evidence to support the inculpatory statement warranted setting aside the penalty.
Conclusions: The Tribunal concluded that the penalty could not be upheld due to the absence of corroborative evidence and the retraction of the inculpatory statement. The Tribunal's decision was deemed reasoned and based on factual findings, with no substantial question of law arising.
2. CESTAT's Role as Final Fact-Finding Authority
Relevant Legal Framework and Precedents: As the final fact-finding authority, the CESTAT is required to issue reasoned orders that consider all materials on record. The Tribunal's decision must be based on a thorough examination of the evidence and findings of the Adjudicating Authority.
Court's Interpretation and Reasoning: The Court found that the Tribunal had issued a reasoned order, considering the materials on record and the findings of the Adjudicating Authority. The Tribunal's reliance on the absence of corroborative evidence and the retraction of the statement was deemed appropriate.
Key Evidence and Findings: The Tribunal's decision was based on the lack of evidence to support the inculpatory statement and the retraction of the statement by the Director. The Tribunal also noted the absence of evidence indicating mis-declaration or circumstantial deductions.
Application of Law to Facts: The Tribunal applied the legal principles regarding the necessity for corroboration of retracted statements and found that the absence of such evidence justified setting aside the penalty.
Treatment of Competing Arguments: The Tribunal considered the arguments regarding the necessity for corroboration and the differences between sections of the Customs Act and Central Excise Act. The Tribunal found that the lack of corroborative evidence was decisive.
Conclusions: The Tribunal's decision was deemed reasoned and based on factual findings, with no substantial question of law arising. The Court found that the Tribunal had fulfilled its role as the final fact-finding authority.
SIGNIFICANT HOLDINGS
The Court held that the Tribunal's decision to set aside the penalty was justified due to the lack of corroborative evidence and the retraction of the inculpatory statement. The Tribunal's decision was based on factual findings and did not raise any substantial question of law.
Core Principles Established:
Final Determinations on Each Issue:
Reasoned and speaking order - Retracted confession and need for corroboration - Acceptance of shipping bill declarations - Consequential penalty on director - Maintainability of appeal under Section 130 of the Customs Act
Reasoned and speaking order - Retracted confession and need for corroboration - Acceptance of shipping bill declarations - Whether the Tribunal (CESTAT) set aside the penalty without reasons and whether its reliance on the retracted statement was permissible - HELD THAT: - The Tribunal recorded detailed reasoning (reproduced in the order) analysing the inculpatory statement of the Director, the subsequent retraction and the requirement of independent corroboration before relying upon a retracted confession. The Tribunal observed that the contents of the affidavit required independent establishment, that declared value in the shipping bill deserved acceptance in absence of other evidence, and that circumstantial deductions were not credible without corroboration. Having applied the salutary principle from K.I. Pavunny that retracted confessions may be relied upon only with prudence and corroboration, the Tribunal found the adjudicating authority had placed overwhelming reliance on the statement without considering the retraction and other material, and therefore allowed relief to the company. The High Court held that the Tribunal's order was reasoned, not a non-speaking order, and no perversity was shown in its application of the rule requiring corroboration of a retracted confession. [Paras 3, 4]
Tribunal's setting aside of penalty is supported by reasoned analysis and its treatment of the retracted statement and corroboration requirement is acceptable; no substantial question of law arises from alleged absence of reasons.
Maintainability of appeal under Section 130 of the Customs Act - Consequential penalty on director - Whether the appeal under Section 130 was maintainable and whether penalty against the Director must stand when relief was granted to the company - HELD THAT: - The Court noted that an appeal under Section 130 is maintainable only on substantial questions of law. Since the Tribunal on merits granted relief to the company (of which the respondent is a Director), any penalty on the Director was consequential to that decision. The High Court, having found the Tribunal's order to be reasoned and devoid of perversity, concluded that no substantial question of law was made out by the revenue in respect of the penalty impugned. [Paras 1, 5, 6]
Appeal under Section 130 does not raise a substantial question of law; penalty on the Director is consequential to the Tribunal's reasoned order in favour of the company and the appeal is dismissed.
Final Conclusion: The High Court dismissed the revenue's appeal under Section 130 of the Customs Act, holding that the Tribunal's order was reasoned and that no substantial question of law arose; the penalty on the Director was consequential to the relief granted to the company.
The primary issues considered in this judgment were:
ISSUE-WISE DETAILED ANALYSIS
Amendment of Shipping Bill
Refund of Customs Duty
Procedural Non-Compliance
SIGNIFICANT HOLDINGS
Amendment of Shipping bill from a “Free Shipping Bill” to a “Shipping Bill for Claim for Drawback” in respect of re-export of goods in terms of Section 149 of the Customs Act, 1962 - confiscation - penalty - HELD THAT:- The imported goods were not allowed to be taken outside the customs area and therefore the question of the imported consignments being re-examined once again before the reexport would have been merely a procedural formality as the Customs Department had already subjected the imported consignments of Black Pepper to test and had sent it for laboratory to comply with the provisions of the Food Safety and Standards Act, 2006.
Since the goods have been reexported back, the procedural irregularities in complying with the requirements of the rules under the Re-export of Imported Goods (Drawback of Customs Duties) Rules, 1995, cannot be pressed against the petitioner as the procedures are handmaids of justice and not mistress of law as held by the Hon'ble Supreme Court in State of Uttar Pradesh Vs Aurya Chambers of Commerce [1986 (4) TMI 363 - SUPREME COURT].
Conclusion - Since the goods having been exported without being cleared, the petitioner cannot be denied the substantial benefits that was available to the petitioner.
The respondent is directed to refund the amount within a period of two (2) months from the date of receipt of a copy of this order - petition allowed.
Issues: Whether, after settlement of default under the amnesty scheme for EPCG authorisation holders by payment of the duty forgone and interest and issuance of closure under the scheme, the penalty imposed under Section 112(a) of the Customs Act, 1962 in lieu of confiscation under Section 111(o) of the Customs Act, 1962 could still be recovered.
Analysis: The amnesty scheme applied to pending and even adjudicated cases of export obligation default under the EPCG scheme and contemplated regularisation on payment of the exempted customs duty proportionate to the unfulfilled export obligation together with interest. It also contemplated issuance of an Export Obligation Discharge Certificate on proof of such payment. The Court held that once the petitioner paid the entire duty foregone along with interest and the default stood regularised under the scheme, the liability arising from non-fulfilment of the export obligation stood discharged. On that basis, the Court reasoned that the petitioner could not be treated as having continued to retain the benefit of the EPCG scheme so as to sustain a further monetary liability by way of penalty in lieu of confiscation.
Conclusion: The penalty imposed under Section 112(a) of the Customs Act, 1962 was held not recoverable from the petitioner and the demand for its recovery was set aside in favour of the assessee.
Amnesty scheme - Failure to achieve the export obligation - availment of concessional rate of duty utilising the benefit of the Export Promotion Capital Goods Scheme - HELD THAT:- It is clear from Ext.P1 that the sum of Rs. 50,23,802/- represents the entire amount of duty forgone under the EPCG Scheme. Rs. 13,35,689/- represents the interest payable on the said amount. The learned Standing Counsel appearing for the Customs Department does not dispute this. If that be the case, the failure to achieve the export obligation has been regularised in terms of the scheme. The inability to fulfill export obligation in terms of the Scheme, no doubt, exposed the petitioner to proceedings for recovery of the Customs Duty and for confiscation/imposition of penalty. However, once a Scheme for settling the liability had been introduced and the petitioner had paid Customs Duty forgone together with interest thereon and had obtained an export obligation discharge certificate (which is to be issued in terms of Ext.P2), the default in not achieving the export obligation was regularized by the proper authority namely, the Directorate General of Foreign Trade, Department of Commerce. There is yet another way of understanding the issue.
The only benefit obtained by the petitioner by utilising the benefit of the EPCG Scheme was that he could import goods without paying the full amount of customs duty. In terms of the Amnesty Scheme, the petitioner has to pay the entire amount of duty foregone along with interest up to the date of payment. On payment of the total amount of duty along with interest, it must be deemed that the petitioner has not availed the benefit of the EPCG Scheme. If that were the situation, the liability to achieve export obligation would be discharged, and no penalty/fine could be imposed on the petitioner.
The fine imposed under Section 112 (a) of the Act in lieu of confiscation under Section 111 (o) of the Act cannot be recovered from the petitioner.
Conclusion - i) The petitioner, having regularized the export obligation by paying the duty and interest under the Amnesty Scheme, cannot be subjected to penalties for the same default. ii) The imposition of a penalty under Section 112(a) of the Customs Act is not justified once the export obligation is deemed fulfilled through the Amnesty Scheme.
Petition allowed.
Issues: Whether the customs broker violated Regulation 10(n) of the Customs Broker Licensing Regulations, 2018 by failing to verify the correctness of IEC, GSTIN, the client's identity, and the client's functioning at the declared address.
Analysis: Regulation 10(n) requires verification through reliable, independent and authentic documents, data, or information. The obligation is satisfied when the customs broker verifies that the IEC and GSTIN are genuinely issued by the competent authorities and obtains independent, reliable material to establish the client's identity and address. The provision does not require the customs broker to supervise the correctness of the issuing officers' actions, to conduct a physical inspection in every case, or to maintain continuous surveillance to ensure that the client remains at the same premises. Officially issued registration and identity documents carry a presumption of genuineness, and the broker is not expected to treat later non-traceability of the exporter as proof of its own default absent material showing fake or forged documents or knowledge of fraud.
Conclusion: The alleged violation of Regulation 10(n) was not established and the revocation, forfeiture, and penalty could not be sustained.
Final Conclusion: The appeal succeeded and the broker was held not liable for action on the basis of the subsequent verification report alone.
Ratio Decidendi: A customs broker discharges the verification obligation under Regulation 10(n) when it relies on authentic government-issued documents and other independent material to verify identity and address, and it is not required to investigate the correctness of the issuing authority's act or maintain continuing physical surveillance of the client.
Revocation of Customs Broker License - forfeiture of security deposit - levy of penalty - violation of Regulation 10(n) of the Customs Broker Licensing Regulations, 2018 - Does the Customs Broker have to satisfy himself that these documents or their copies given by the client were indeed, issued by the concerned government officers or does the Customs Broker have to ensure that the officers had correctly issued these documents? - HELD THAT:- Regulation 10(n) does not place an obligation on the Customs Broker to oversee and ensure the correctness of the actions by Government officers. Therefore, the verification of documents part of the obligation under Regulation 10(n) on the Customs Broker is fully satisfied as long as the Customs Broker satisfies itself that the IEC and the GSTIN were, indeed issued by the concerned officers. This can be done through online verification, comparing with the original documents, etc. and does not require an investigation into the documents by the Customs Broker. Therefore, the appellant was correct in verifying the GSTIN issued by the department on the GST portal. The presumption is that a certificate or registration issued by an officer or purported to be issued by an officer is correctly issued. Section 79 of the Evidence Act, 1872 requires even Courts to presume that every certificate which is purported to be issued by the Government officer to be genuine.
The onus on the Customs Broker cannot, therefore, extend to verifying that the officers had correctly issued the certificate or registration. Of course, if the Customs Broker comes to know that its client has obtained these certificates through fraud or misrepresentation, nothing prevents it from bringing such details to the notice of Customs officers for their consideration and action as they deem fit. However, the Customs Broker cannot sit in judgment over the certificate or registration issued by a Government officer so long as it is valid. In this case, there is no doubt or evidence that the IEC, the GSTIN and other documents were issued by the officers. So, there is no violation as far as the documents are concerned.
There is nothing on record to show that either of these documents were fake or forged. Therefore, they are authentic and reliable and there are no reason to believe that the officers who issued them were not independent and neither has the Customs Broker any reason to believe that they were not independent.
The responsibility of the Customs Broker under Regulation 10(n) does not include keeping a continuous surveillance on the client to ensure that he continues to operate from that address and has not changed his operations. Therefore, once verification of the address is complete as discussed in the above paragraph, if the client moves to a new premises and does not inform the authorities or does not get his documents amended, such act or omission of the client cannot be held against the Customs Broker.
Conclusion - The appellant Customs Broker did not fail in discharging its responsibilities under Regulation 10(n). The impugned order is not correct in concluding that the Customs Broker has violated Regulation 10(n) because the exporter was found to not exist during subsequent verification by the officers.
The impugned order, therefore, cannot be sustained and is set aside - appeal allowed.
The primary legal questions considered in this judgment are:
ISSUE-WISE DETAILED ANALYSIS
1. Requirement of WPC License for Imported Goods
The relevant legal framework includes Notification No. 71-Customs dated 25.09.1953, as amended, which mandates that the import of wireless telegraphy apparatus requires a WPC import license. Additionally, the Ministry of Commerce Notification No. 37 (RE 2005) / 2004-2009 dated 09.01.2006 supports this requirement.
The Court interpreted these notifications to unequivocally require a WPC License for the import of the specified goods. The evidence presented included findings from investigations by the Directorate of Revenue Intelligence (DRI), which revealed that the WPC Licenses produced were forged. This evidence was crucial in establishing the requirement and the absence of a valid license.
Applying the law to the facts, the Court concluded that the goods were imported without valid WPC Licenses, rendering the import illegal under Section 11A (a) of the Customs Act, 1962, and subject to confiscation under Section 111 (d) of the Customs Act, 1962.
2. Justification for Confiscation and Penalties
The Court considered the imposition of penalties under sections 112 and 114AA of the Customs Act, 1962. The evidence included statements under Section 108 of the Customs Act from individuals involved in the conspiracy to forge WPC Licenses. The investigation revealed that the appellant and others conspired to forge these licenses for monetary gain and competitive advantage.
The Court found that the appellant and associated individuals were directly involved in the forgery and that the forged licenses were used to facilitate the illegal importation of goods. The examination of electronic devices and recovery of rubber stamps used in the forgery further substantiated the findings.
The Court treated competing arguments by examining the grounds of appeal, which claimed that the Commissioner's findings were unsupported by evidence. However, the Court found these arguments unconvincing, as the Commissioner's findings were based on substantial evidence of forgery and conspiracy.
SIGNIFICANT HOLDINGS
The Court upheld the Commissioner's order, emphasizing that "Fraud vitiates everything," and no benefit can accrue to the appellant from the forged licenses. The core principles established include the necessity of a valid WPC License for the import of specified goods and the severe consequences of forgery and conspiracy in customs matters.
The final determination dismissed the appeal, affirming the penalties imposed under sections 112 and 114AA of the Customs Act, 1962, due to the appellant's involvement in the forgery and illegal importation activities.
Levy of penalty u/s 112 of the Customs Act, 1962 and a penalty u/s 114AA of the Customs Act - whether the goods that were imported required Wireless Planning and Coordination (WPC) License and whether in the absence of this license, the goods could be confiscated? - existence of proper evidence or not - principles of natural justice - HELD THAT:- It is not possible to accept the contention that has been raised in the grounds of appeal that the finding recorded by the Commissioner is without any evidence. The Commissioner has meticulously examined the evidence and has recorded a categorical finding of fact that either WPC Licenses were not produced and the WPC Licenses that were produced were forged. This finding has not been effectively contraverted. Fraud vitiates everything, and therefore, no benefit can accrue to the appellant.
Appeal dismissed.
Issues: (i) Whether the show cause notice and consequential demand were sustainable when they invoked omitted provisions for the post-01.07.2012 period. (ii) Whether services received for business exhibitions held outside India were chargeable to service tax under reverse charge, or stood outside the tax net and/or within the exemption notifications. (iii) Whether interest and penalties were leviable.
Issue (i): Whether the show cause notice and consequential demand were sustainable when they invoked omitted provisions for the post-01.07.2012 period.
Analysis: The demand for the relevant period was issued after the service tax regime had changed from 01.07.2012. The notice continued to proceed under the erstwhile charging provisions, while the new charging framework under Section 66B had come into force. The order also proceeded on a footing inconsistent with the notice, and the defect was treated as substantive rather than merely technical.
Conclusion: The notice and the demand based on it were held unsustainable.
Issue (ii): Whether services received for business exhibitions held outside India were chargeable to service tax under reverse charge, or stood outside the tax net and/or within the exemption notifications.
Analysis: Services relating to admission to, or organisation of, exhibitions are governed by the place-of-provision rule that fixes the place of provision as the place where the event is actually held. Since the exhibitions were held outside the taxable territory, the place of provision was outside India. The exemption notifications dealing with business exhibitions held outside India were also applicable, and the authorities below had ignored the earlier departmental view granting relief on the same issue.
Conclusion: The service tax demand was held not payable.
Issue (iii): Whether interest and penalties were leviable.
Analysis: Once the underlying tax demand failed, no interest could survive. The appellant's bona fide belief was treated as reasonable cause, attracting relief from penalty. The statutory provision enabling waiver of penalty was applied in the appellant's favour.
Conclusion: Interest and penalties were held not leviable.
Final Conclusion: The demand, interest and penalties were set aside, and the appellant obtained complete relief on the merits.
Ratio Decidendi: For services connected with exhibitions held outside India, the place of provision is where the event is actually held, and when the underlying tax is not lawfully leviable, interest and penalty cannot survive; a bona fide belief may constitute reasonable cause for penalty relief.
Liability of appellant to pay tax on the amount paid or remitted to the foreign based service provider under the Banking and Financial services on Reverse Charge Mechanism [RCM] basis - place of provision of services - Mega Exemption Notification No. 25/2012 dated 20th June 2012 -demand of interest and penalties.
HELD THAT:- The present show cause notice is 4th in line. It has been brought to our notice that the SCN dated 21.01.2013 has been decided vide order in original No. 17/2013 dated 29.03.2014 wherein the Assistant Commissioner had dropped the demand in respect of ‘Business Exhibition Service’ received from the foreign service providers located outside the taxable territory holding that Notification No. 5/2011 dated 01.06.2011 exempts the taxable services specified in sub clause (zzo) of clause (105) of Section 65 of the said Finance Act, when provided by an organizer of Business Exhibition for holding a business exhibition outside India, from the whole of the service tax leviable thereon under Section 66 of the said Act. The impugned order has absolutely ignored the said decision. It has been the settled law that once an order has been passed allowing full relief to the assessee then it would not be proper for the department to take a different view on same issue provided there are no factual difference in two situations.
The Hon’ble Apex Court in Vishnu Traders [1993 (11) TMI 230 - SUPREME COURT] has held 'In the matters of interlocutory orders, principle of binding precedents cannot be said to apply. However, the need for consistency of approach and uniformity in the exercise of judicial discretion respecting similar causes and the desirability to eliminate occasions for grievances of discriminatory treatment requires that all similar matters should receive similar treatment except when factual differences require a different treatment so that there is assurance of consistency, uniformity, predictability and certainty of judicial approach.'
Coming to the submission vis-à-vis invalidity of the show cause notice demanding service tax under the omitted provisions, we observe that the impugned show cause notice has been issued after the amendment in Finance Act with effect from 01.07.2012. The said amendment as per Notification No. 19/2012 dated 05.06.2012 has made the erstwhile section i.e. Section 66 of Finance Act 1994 as inoperative with effect from 01.07.2012 and Section 66B is incorporated as the new charging section of the service tax. The impugned show cause notice has demanded service tax under the erstwhile Section 66 of the Finance Act. The show cause notice is apparently invalid otherwise also as per newly incorporated Section 66B. The service tax with effect from 1.7.2012, is leviable on all services except those specified in the negative list of the services.
It is the appellant’s case which is not anywhere disputed nor denied, that the services were received for conducting Business Exhibitions that too abroad i.e. the exhibitions were conducted outside the taxable territory. Hence had the right provisions would have been invoked at the time of issuance of show cause notice, there was no necessity for the issuance. The show cause notice issued under inoperative erstwhile provision is not sustainable.
Place of Provision of Services - HELD THAT:- The Place of Provisions for holding any exhibition/events shall be the place where the event is held. The department’s own Educational Guide dated 20.06.2012 has also clarified that the event held outside taxable territory is not covered under Finance Act, 1994. It is an undisputed fact of the present appeal that the Business Exhibition for which the appellant received services from the foreign agencies, were held outside the taxable territory. Resultantly, the Place of Provision of Services received by the appellant from the foreign service provider shall be outside the territory of India. Accordingly, appellant is not liable to pay service tax even under RCM.
Mega Exemption Notification No. 25/2012 dated 20th June 2012 - HELD THAT:- The adjudicating authorities have miserably ignored the exemption notifications. From Section 66B also there is the tax liability for all services being not covered in the negative list. However, section itself clarifies any service shall not be liable to tax if same falls under any of the exemption notification. Hence the demand of service tax has wrongly been confirmed.
Imposition of penalty and demand of interest - HELD THAT:- Since the service tax itself is not payable the question of charging any interest under provision of Section 75 of the Act does not at all arises - it is observed that it has been defence of the appellant, since beginning, that the appellant has bona fide belief that it is not liable to pay service tax even under reverse charge on the payment made to the foreign service provider. The said bona fide belief is held to be a reasonable cause for not discharging depositing the service tax. Resultantly, the appellant is held entitled for the benefit of Section 80 of the Finance Act, 1994. Support drawn from the decision of this Tribunal in Mumbai Bench in the case of Commissioner of Service Tax, Mumbai Vs. Gama Consultancy Pvt. Ltd. [2006 (8) TMI 32 - CESTAT, MUMBAI]. Accordingly, the penalty is also wrongly imposed upon the appellant.
Conclusion - i) The place of provision rules dictate tax liability and that exemptions must be considered. ii) The show cause notice is invalid. iii) The appellant was not liable for service tax under RCM for exhibitions held abroad; exemptions applied. iv) Penalties and interest are unwarranted.
Appeal allowed.
The Tribunal considered two primary legal issues in this case:
1. Whether the service tax is applicable on the one-time premium collected for the renting of immovable property.
2. Whether the service tax is applicable on the renting of shops, specifically considering the threshold exemption limit under the relevant notifications.
ISSUE-WISE DETAILED ANALYSIS
1. Service Tax on One-Time Premium Collected
Relevant Legal Framework and Precedents: The Tribunal examined the applicability of service tax on one-time premium under the Finance Act, 1994, specifically section 65(105)(zzzz) which pertains to "renting of immovable property." The Tribunal referred to the decision of the Hon'ble Allahabad High Court in the case of M/s Greater Noida Industrial Development Authority, which held that the one-time premium is a taxable service under the renting of immovable property.
Court's Interpretation and Reasoning: The Tribunal noted that the definition of "renting of immovable property" includes leasing, which under section 105 of the Transfer of Property Act includes both premium and periodical rent. The Tribunal disagreed with the earlier decision of the Division Bench in Greater Noida Industrial Development Authority, which had distinguished between premium and rent for service tax purposes.
Key Evidence and Findings: The Tribunal relied on the interpretation that leasing includes both premium and rent, thereby subjecting the one-time premium to service tax.
Application of Law to Facts: The Tribunal applied the law as interpreted by the larger bench, which held that both premium and rent are taxable under the renting of immovable property.
Treatment of Competing Arguments: The appellant argued that the one-time premium should not be considered as renting activity and relied on previous decisions that supported their view. However, the Tribunal found these arguments unpersuasive in light of the larger bench's interpretation.
Conclusions: The Tribunal concluded that the one-time premium collected is subject to service tax under the renting of immovable property.
2. Service Tax on Renting of Shops
Relevant Legal Framework and Precedents: The Tribunal considered the threshold exemption limit under Notification No. 4/2007-ST dated 01.03.2007, which provided an exemption limit for service tax liability.
Court's Interpretation and Reasoning: The Tribunal examined whether the rent collected fell below the threshold exemption limit, which was Rs. 8 lakhs during the relevant period.
Key Evidence and Findings: The appellant provided a chart indicating that the total rent collected was below the exemption limit. However, the Tribunal found that when considering the premium and rent together, the total exceeded the exemption limit.
Application of Law to Facts: The Tribunal applied the exemption limit to the combined total of premium and rent, concluding that the exemption did not apply.
Treatment of Competing Arguments: The appellant argued for exemption based on the threshold limit, but the Tribunal found that the combined total exceeded the limit, making the exemption inapplicable.
Conclusions: The Tribunal held that the renting of shops was subject to service tax as the total amount exceeded the threshold exemption limit.
SIGNIFICANT HOLDINGS
Preserve Verbatim Quotes of Crucial Legal Reasoning: "The value of 'premium' or 'salami' is exigible to service tax under 'renting of immovable property' for the period prior to 01.07.2012 under section 65(105)(zzzz) of the Finance Act and from 01.07.2012 under section 66B of the Finance Act."
Core Principles Established: The Tribunal established that both the one-time premium and the rent are subject to service tax under the renting of immovable property, and the exemption limit applies to the combined total of these amounts.
Final Determinations on Each Issue: The Tribunal dismissed the appeal, upholding the service tax liability on both the one-time premium and the renting of shops, as the combined total exceeded the threshold exemption limit.
Levy of service tax on the one-time premium collected for the renting of immovable property - applicability of renting of shops, specifically considering the threshold exemption limit under the relevant notifications.
HELD THAT:- The issue is squarely covered by the decision of Hon'ble Allahabad High Court in the case of M/s Greater Noida Industrial Development Authority, Noida [2015 (4) TMI 1231 - ALLAHABAD HIGH COURT] wherein it was held that 'Letting of immovable property for consideration, which is determined on the basis of offers received from public at large by the assessee Greater Noida Industrial Development Authority is a service provided for consideration and not on payment of statutory fees, neither it is a statutory service performed by the assessee. It may be that the statute permits such activities of letting out of immovable property for augmenting its finances but the same cannot be termed as the service in public interest nor it is a mandatory or statutory functions of the Development Authority. Accordingly such activity of leasing do constitute a taxable service, in our opinion.'
As there are no merits in the submissions made by the appellant in respect of the levy of service tax on the “one time premium” or “salami” collected by them, the value of taxable services provided during each financial year for the period in the dispute would be more than the threshold exemption limit as provided by the Notification No 4/2007-ST dated 01.03.2007 as amended from time to time.
Conclusion - Both the one-time premium and the rent are subject to service tax under the renting of immovable property, and the exemption limit applies to the combined total of these amounts.
There are no merits in the appeal - appeal dismissed.
A) What is the nature of the amount deposited by the appellant during the investigation towards service tax, which was appropriated by the adjudicating authority towards a confirmed demand of service tax, which was, on appeal, set aside by the tribunalRs.
B) Will the appellant be entitled to interest on the refund of the above amount as prescribed under section 11BB under section 35FF of the Central Excise Act, 1944, as made applicable to Service Tax by virtue of section 80 of the Finance Act, 1994, or at 12% per annum as claimed by the appellantRs.
ISSUE-WISE DETAILED ANALYSIS
Issue A: Nature of the Amount Deposited
- Relevant legal framework and precedents: The legal framework involves sections 11B and 11BB of the Central Excise Act, 1944, as applicable to service tax through section 83 of the Finance Act, 1994. The Supreme Court's decision in ITC Ltd. v. Commissioner of Central Excise, Kolkata-IV is pivotal in understanding the nature of deposits and refund procedures.
- Court's interpretation and reasoning: The Tribunal determined that the amount deposited by the appellant during the investigation was treated as service tax. This determination was based on the fact that the amount was appropriated towards the confirmed demand of service tax by the adjudicating authority. The Tribunal's subsequent order setting aside the demand rendered the amount refundable.
- Key evidence and findings: The appellant deposited the amount during an investigation, which was appropriated by the adjudicating authority. The Tribunal's order set aside the demand, making the amount refundable.
- Application of law to facts: The Tribunal applied section 11B, which covers situations where duty becomes refundable due to a judgment or order. The Tribunal concluded that the amount was service tax, which became refundable following its order.
- Treatment of competing arguments: The appellant argued that the amount was a 'Revenue deposit' and not service tax or a pre-deposit. The Tribunal rejected this argument, stating that the amount was appropriated towards service tax and became refundable upon the Tribunal's order.
- Conclusions: The Tribunal concluded that the amount deposited was service tax, which became refundable under section 11B following the Tribunal's order setting aside the demand.
Issue B: Entitlement to Interest on Refund
- Relevant legal framework and precedents: The legal framework involves sections 11BB and 35FF of the Central Excise Act, 1944, regarding interest on refunds. The appellant claimed interest at 12% per annum, while the Revenue applied a 6% rate as per section 35FF.
- Court's interpretation and reasoning: The Tribunal reasoned that the interest on the refundable amount should be governed by section 11BB, not section 35FF. The Tribunal emphasized that the amount was service tax, not a pre-deposit, and thus section 35FF was inapplicable.
- Key evidence and findings: The appellant received a refund with 6% interest, which was contested. The Tribunal found that the interest should be recalculated under section 11BB.
- Application of law to facts: The Tribunal applied section 11BB, which mandates interest on refunds when there is a delay in sanctioning the refund. The Tribunal directed the Assistant Commissioner to recalculate interest under section 11BB.
- Treatment of competing arguments: The appellant's claim for 12% interest was based on equity, arguing that statutory provisions did not apply. The Tribunal rejected this, applying statutory provisions for interest.
- Conclusions: The Tribunal concluded that interest should be recalculated under section 11BB, not section 35FF, and directed the Assistant Commissioner to do so.
SIGNIFICANT HOLDINGS
- Core principles established: The Tribunal established that amounts deposited as service tax during investigations, which become refundable due to a Tribunal order, are subject to refund procedures under section 11B. Interest on such refunds is governed by section 11BB, not section 35FF.
- Final determinations on each issue: The Tribunal determined that the amount was service tax, refundable under section 11B, with interest recalculated under section 11BB. The Tribunal set aside the impugned order and remanded the matter to the Assistant Commissioner for recalculating interest.
- Verbatim quotes of crucial legal reasoning: "Therefore, on the facts of this case and the law laid down by Supreme Court in ITC Ltd., the amount paid by the appellant was Service Tax which became refundable consequent upon the order of this Tribunal. Such refunds are payable as per section 11B and the relevant date for applying for such refunds as per Explanation B (ec) to section 11B is the date of the order of the Tribunal or the judgment of the Court."
The Tribunal's decision underscores the importance of adhering to statutory provisions for refund and interest calculations, rejecting claims based on equity when statutory provisions are clear and applicable.
Rate of Interest on Refund - Rejection of appellant’s prayer for higher rate of interest of 12% instead of the notified rate of 6% for deposits under section 35FF - nature of the amount deposited by the appellant during investigation towards service tax, which was appropriated by the adjudicating authority towards confirmed demand of service tax - interest on refund of the above amount as prescribed under section 11 BB under section 35FF of the Central Excise Act, 1944 as made applicable to Service Tax by virtue of section 80 of the Finance Act, 1994.
How should an amount which has been deposited as service tax, but which subsequently became refundable, consequent upon an order of the tribunal or courts be treated. Will it be a service tax, pre-deposit or just a revenue deposit? - HELD THAT:- There are no separate provisions for refund of service tax under Chapter V of the Finance act 1994 [Finance Act]. The provisions of sections 11B, 11BB, 35F, 35FF have been made applicable to service tax by section 83 of the Finance act, 1994. Section 11B deals with refund of excise duty and when applied to service tax, it deals with refund of service tax. Section 11BB deals with interest on refund under section 11B - vidently, section 11B covers situations where the duty becomes refundable as a consequence of an order or judgment by the Tribunal or any Court which is precisely the case here. The submission of the appellant is that what it had paid was not duty at all because no duty was payable. To examine this submission, what needs to be examined what is the situation under which a duty becomes refundable. If the amount which is paid as duty is due, it will not be refundable at all. If it is not payable as duty, then it becomes refundable under section 11B.
Who and what factors will determine if the amount paid as duty was payable or not? - HELD THAT:- This question was dealt with at length by the larger bench of the Supreme Court in ITC LTD. Vs. Commissioner Of Central Excise, Kolkata-Iv [2019 (9) TMI 802 - SUPREME COURT (LB)]. In this judgment, the Supreme Court dealt with a batch of appeals dealing with the question as to whether refund can be sanctioned so as to modify the assessment including self-assessment. The Supreme Court held that refund proceedings are in the nature of execution proceedings and refund cannot be sanctioned so as to modify the assessment including self-assessment. The person seeking modification of the assessment has to assail it in an appeal and refund can be sanctioned only after the assessment is modified.
In this case, the SCN issued by the department proposing demand of service tax effectively modifying the assessment. This proposal was confirmed by the lower authorities. The amounts paid by the appellant during investigation were appropriated towards the service tax. Had there been no appeal or further orders by this Tribunal, the amount paid by the appellant would have been Service tax.
The distinction between refund of pre-deposit made under section 35F and duty or service tax paid under section 11B is that the pre-deposit under section 35F can be a percentage of duty, fine or penalty. It must be deposited as a pre-condition for filing an appeal. If the pre-deposit is not made, there will be no right of appeal to the person aggrieved by the order. Section 11B, on the other hand, provides for refund of duty or service tax. If an amount is already paid as duty or service tax, it is reckoned while computing if any further amount needs to be paid to meet the mandatory requirement of pre-deposit under section 35F. Merely because such adjustment is made, the amount paid as service tax or fine or penalty does not become pre-deposit under section 35F.
Conclusion - What was paid by the appellant was service tax as determined by the lower authorities in the adjudication proceedings. If there was no further order, nothing would have been refundable. However, the order of the adjudicating authority was modified by this Tribunal setting aside the demand. Therefore, the service tax became refundable as per section 11B and the relevant date for the purpose was the date of the order of the Tribunal. If there was any delay in sanctioning of the refund, interest must be paid as per section 11BB.
Matter remanded to the Assistant Commissioner to examine and sanction refund under section 11B along with interest under section 11BB. It is made clear that the appellant had already made an application in the form of a letter which was processed and no new application is required. Only the amount of interest may be recalculated as per section 11BB instead of as per section 35FF.
The impugned order is set aside and the matter is remanded to the Assistant Commissioner.
Issues: Whether the service tax demand on charges recovered for erection, commissioning and installation activities connected with transmission of electricity was sustainable.
Analysis: The demand arose from activities undertaken by a State Transmission Utility in relation to erection of bays, substations and transmission lines for transmission of electricity. The dispute had already been covered by earlier decisions of the same Bench holding that services used for transmission of electricity were not liable to service tax for the relevant period, including the period governed by the notifications relied upon and the negative list regime under section 66D. The present appeal was also treated as falling within that settled position, and the demand was therefore held unsustainable.
Conclusion: The service tax demand was not sustainable and the appeal succeeded in favour of the assessee.
Failure to pay the appropriate service tax on “Erection, Commissioning and Installation Service” and “Works Contract Service” under Reverse Charge Mechanism as per the applicable provisions while providing transmission services as per Electricity Act, 2003 - demand for interest on Cenvat credit reversed by the appellant - invocation of Extended period of limitation - HELD THAT:- It is found that consistently this Bench has held that the appellant are entitled to benefit sought of tax being exempted. The matter is squarely covered with adverse decision to the revenue of this Tribunal as on date. In this regard, para 7 & 9 of the decision in GUJARAT ENERGY TRANSMISSION CORPORATION LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE & ST, ANAND [2024 (2) TMI 1401 - CESTAT AHMEDABAD] where it was held that 'the entire period in the present appeal i.e. related to Notification No. 45/2010-ST, 11/2010-ST and also for the period when negative list under Section 66D was in force, it was held that service for transmission of electricity is not leviable to service tax. Therefore, the issue is no longer res-integra.'
Conclusion - i) The services related to the transmission of electricity are exempt from service tax. ii) The demand for interest for the longer period would not sustain.
Appeal allowed.
Clandestine removal - Time limitation for issuance of SCN - issuance of show cause notice much belatedly on 28.9.2020 after invoking the extended period despite starting the investigation in the month of May, 2016 itself - suppression of facts or not - discharge of burden of establishing beyond reasonable doubt the clandestine manufacture and removal of alleged assembled T.V. sets from the warehouse/godown at Bhiwandi - it was held by CESTAT that 'Once the issue has been settled by the Settlement Commission on an application filed by an assessee, the adjudicating authority in different proceedings for different show cause notice concerning same assessee cannot base its adjudication on the findings recorded by the Settlement Commission. Therefore, the Adjudicating Authority is not justified.'
HELD THAT:- There are no good reason to interfere with the impugned order dated 15-10-2024 passed by the Customs, Excise and Service Tax Appellate Tribunal, West Zone Bench at Mumbai.
Appeal dismissed.
Issues: (i) Whether the appellants were entitled to the benefit of the DTA clearance exemption for finished goods and scrap, and whether the demand of duty, interest and appropriation of amounts already deposited were sustainable. (ii) Whether the penalties imposed on the company and the individual employees were sustainable.
Issue (i): Whether the appellants were entitled to the benefit of the DTA clearance exemption for finished goods and scrap, and whether the demand of duty, interest and appropriation of amounts already deposited were sustainable.
Analysis: The exemption governing DTA clearances from a 100% EOU was held to be subject to strict compliance with the conditions in the notification and the Foreign Trade Policy. The Tribunal found that the goods cleared in DTA were not shown, on reliable evidence, to be similar or commercially interchangeable with the exported goods, and that the appellant's own admissions supported this conclusion. It also held that the exemption could not be claimed where the prescribed conditions, including the policy restrictions on DTA sales, were not satisfied. Since the duty and interest had been paid after departmental detection, the demand and appropriation were maintained.
Conclusion: The duty demand, interest demand, and appropriation of amounts already deposited were upheld against the assessee.
Issue (ii): Whether the penalties imposed on the company and the individual employees were sustainable.
Analysis: The Tribunal held that the penalty on the company under Section 11AC and Rule 25 could not survive in the facts of the case and set it aside. It further held that penalty under Rule 26 on the employees required proof of positive acts of omission or commission connected with goods liable to confiscation, and mere knowledge of the company's clearances was insufficient. As no such positive role was established against the employees, the personal penalties were unsustainable.
Conclusion: The penalties imposed on the company and the individual employees were set aside.
Final Conclusion: The duty liability was sustained, but the penal consequences were deleted, resulting in only partial relief to the appellants.
Ratio Decidendi: Exemption notifications for EOU DTA clearances must be strictly construed, and penalty under Rule 26 requires proof of active participation or a positive act linked to confiscable goods, not mere knowledge.
Short payment of duty under provisions of Section 11A(1) of the Central Excise Act, 1944 alongwith interest as per provisions of Section 11AB of Central Excise Act 1944 - benefit of Notification No. 23/2003-CE dated 31.03.2003 claimed for the DTA clearances done - HELD THAT:- It is settled preposition in law that the exemption Notification need to be interpreted strictly according to wordings of the notification. Hon’ble supreme Court has in case of Dilip Kumar & Company [2018 (7) TMI 1826 - SUPREME COURT (LB)] observed that 'Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification.'
The basic of the EOU scheme is for promotion of the exports. From para 6.8 of the Foreign Trade Policy reproduced above it is quite evident that the entire production of the EOU is to be exported and the DTA sales are permitted in certain specific conditions subject to the restrictions and conditions imposed. The Exemption N/N. 23/2003-CE which is in respect of the DTA sales made by an EOU needs to be considered in an strict manner in accordance with the scheme. The appellant soon after starting their EOU started clearance of the scrap/ goods in DTA. The intentions of the appellant by making such huge clearances of scrap and goods within a period of less than a year from the date of setting of EOU and starting export production and clearances is itself indicative of the ill intentions of the appellant.
For the reason that the appellant has deposited the entire amount of duty along with the interest during the investigation and prior to issuance of Show Cause notice the proceedings in respect of the amounts so deposited could not have been initiated against the appellant and the same should have been closed as per law.
Penalty has been imposed upon these appellants only on the basis of the statement of Appellant 2 without recording any act of omission or commission committed by the appellant 2, 3 and 4 leading to the holding that the goods were liable for confiscation. The penalty has been imposed only for their knowledge about the activities of Appellant 1, which evidently they would have acquired in normal course of business. Penalty under Rule 26 could not have been imposed for the reason of knowledge but could have been imposed only for positive acts of omission or commission, for which the goods were held liable for confiscation. In absence of any positive findings recorded in the impugned order to this effect, there are no merits in the penalties imposed under rule 26 on the employees of the Appellant.
Conclusion - i) Demand of duty and interest is upheld and also the appropriation of the same against the amounts already deposited prior to the issuance of show cause notice. ii) Penalties imposed under Section 11AC of The Central Excise Act, 1944 read with Rule 25 of the Central Excise Rules, 2002 and FTP is set aside. iii) Penalties imposed upon Appellant 2, Appellant 3 and appellant are set aside.
Appeal allowed in part.
The core legal question considered in this judgment was whether the demand for Central Excise duty and associated penalties imposed on the Appellant under Rule 8(3A) of the Central Excise Rules, 2002, were valid and enforceable, given the precedents set by higher courts declaring the rule ultra vires.
ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents
The primary legal framework involved the Central Excise Rules, 2002, specifically Rule 8(3A), which mandates the payment of duty without utilizing Cenvat credit during a period of default. The Appellant's case was influenced by the decisions in Indsur Global Limited Vs. Union of India and Sandley Industries Ltd. Vs. Union of India, where Rule 8(3A) was declared ultra vires by the Gujarat High Court and Punjab & Haryana High Court, respectively.
Court's Interpretation and Reasoning
The Tribunal noted that the issue of non-payment of duty under Rule 8(3A) had been previously adjudicated by the Gujarat High Court, which found the rule to be ultra vires. This decision was not challenged further by the Revenue in the Supreme Court, as the Special Leave Petition was not pressed. Thus, the Tribunal concluded that the precedent set by the Gujarat High Court was still applicable and binding.
Key Evidence and Findings
The Tribunal reviewed the facts that the Appellant had failed to discharge the monthly duty payment as required, leading to the confirmation of the demand and penalty by the lower authorities. However, the Tribunal found that the legal basis for these demands, Rule 8(3A), was invalidated by higher court rulings.
Application of Law to Facts
Applying the legal precedents to the facts, the Tribunal determined that since Rule 8(3A) was declared ultra vires, the demands and penalties imposed on the Appellant under this rule could not be sustained. The Tribunal relied on the principle that an ultra vires rule cannot form the basis of a valid demand or penalty.
Treatment of Competing Arguments
The Tribunal addressed the arguments from both sides, emphasizing the binding nature of the Gujarat High Court's decision. The Tribunal effectively dismissed any competing arguments from the Revenue that sought to uphold the demand, as the legal foundation for such a demand was no longer valid.
Conclusions
The Tribunal concluded that the demand for Central Excise duty and the associated penalties were unsustainable due to the invalidation of Rule 8(3A). Consequently, the appeal was allowed, and the Appellant was entitled to consequential relief.
SIGNIFICANT HOLDINGS
The Tribunal's significant holding was that the demand and penalties based on Rule 8(3A) were not enforceable, as the rule was declared ultra vires. The Tribunal stated, "Under these circumstances, I hold that the decision of the Hon'ble Gujarat High Court in the case of Indsur Global Ltd. (Supra) is holding the field. Accordingly, relying on the decision of Hon'ble Gujarat High Court in the case of the Indsur Global Ltd. (Supra), I hold that the demand against the Appellant is not sustainable."
The core principle established by this judgment is the non-enforceability of demands and penalties based on a rule declared ultra vires by competent judicial authorities. The final determination was the allowance of the appeal, setting aside the demand and penalties imposed on the Appellant.
Failure to discharge monthly payment of duty under Rule 8(3A) of the Central Excise Rules, 2002 - HELD THAT:- The issue involved in this matter has been decided by the Hon’ble Gujarat High Court in the case of Indsur Global Limited Vs. Union of India,2014 (12) TMI 585 - GUJARAT HIGH COURT] and Sandley Industries Ltd. Vs. Union of India, [2015 (10) TMI 2455 - PUNJAB & HARYANA HIGH COURT] wherein provision of Rule 8(3A) of Central Excise Rules, 2002 was held ultra virus. Therefore, no demand can be raised against the Appellant and the decision of the Hon’ble Gujarat High Court in the case of Indsur Global Limited was taken up by the Revenue before the Hon’ble Supreme Court in UNION OF INDIA & ORS. VERSUS INDSUR GLOBAL LTD. [2024 (7) TMI 1559 - SC ORDER (LB)], Larger Bench of the Supreme Court disposed of the SLP filed by the Revenue as not pressed.
Under these circumstances, the decision of the Hon’ble Gujarat High Court in the case of Indsur Global Ltd. is holding the field. Accordingly, relying on the decision of Hon’ble Gujarat High Court in the case of the Indsur Global Ltd., the demand against the Appellant is not sustainable. Consequently, no penalty is imposable.
Conclusion - The demand and penalties based on Rule 8(3A) were not enforceable, as the rule was declared ultra vires.
The appeal filed by the Appellant is allowed.
The primary issue considered in this judgment was whether the delay in adjudicating the Show Cause Notice (SCN) issued to the appellant, M/s. Sharma Steel Rolling Mills, and the subsequent order confirming a portion of the demand was legally sustainable. Additionally, the Tribunal considered the sufficiency of evidence presented by the Revenue to substantiate the allegations of clandestine manufacture and removal of goods by the appellant.
ISSUE-WISE DETAILED ANALYSIS
1. Delay in Adjudication of the SCN
Relevant Legal Framework and Precedents: The Tribunal examined Section 11A of the Central Excise Act, 1944, which outlines the time limits for adjudicating SCNs. The section was amended in 2011 to introduce specific time limits for deciding SCNs. The Tribunal also referenced its own decision in Excise Appeal No. 52178 OF 2022, which emphasized the necessity of adhering to these statutory time limits.
Court's Interpretation and Reasoning: The Tribunal noted that even before the statutory time limits were introduced, adjudication needed to occur within a reasonable period. The Tribunal underscored that the statutory time limits are intended to prevent uncertainty and ensure timely adjudication, reflecting the legislative intent to avoid indefinite delays.
Key Evidence and Findings: The SCN was issued on 3.12.2009, and the impugned order was passed on 22.2.2019, nearly ten years later. The Tribunal found no justification for this delay, as the appellant had promptly responded to the SCN and participated in the proceedings.
Application of Law to Facts: The Tribunal applied the principles of statutory interpretation to conclude that the delay in adjudication was unreasonable and that the statutory time limits should apply to pending cases as well. The Tribunal emphasized that the delay itself vitiated the order.
Treatment of Competing Arguments: The Revenue did not provide a plausible explanation for the delay in adjudication. The Tribunal rejected any argument suggesting that the absence of a statutory time limit at the time of SCN issuance justified the delay.
Conclusions: The Tribunal concluded that the impugned order must be set aside due to the unreasonable delay in adjudication, rendering it unnecessary to examine the merits of the case.
2. Sufficiency of Evidence for Allegations of Clandestine Manufacture and Removal
Relevant Legal Framework and Precedents: The Tribunal considered the principle that demands cannot be based solely on third-party evidence without corroborative evidence. The Tribunal referred to previous cases, including the decision in Siva Prasad Mills Private Ltd, which underscored the necessity of substantive evidence to support allegations of clandestine removal.
Court's Interpretation and Reasoning: The Tribunal noted that the Revenue's case relied heavily on records from third parties (SSSRM and Nirmal) and statements from individuals who were not cross-examined. The Tribunal emphasized the importance of cross-examination in establishing the reliability of such evidence.
Key Evidence and Findings: The Tribunal found that the Revenue's case lacked corroborative evidence to support the allegations against the appellant. The absence of cross-examination of key witnesses further weakened the Revenue's position.
Application of Law to Facts: The Tribunal applied the principle that allegations of clandestine removal must be substantiated by concrete evidence, not merely assumptions or third-party records. The lack of direct evidence against the appellant led the Tribunal to question the validity of the confirmed demand.
Treatment of Competing Arguments: The Tribunal acknowledged the Revenue's argument that proving clandestine removal with mathematical accuracy is challenging. However, it reiterated the necessity of substantive evidence to support such allegations.
Conclusions: Although the Tribunal did not need to decide on the merits due to the procedural delay, the lack of substantive evidence would have been a significant hurdle for the Revenue in sustaining the demand.
SIGNIFICANT HOLDINGS
Core Principles Established: The Tribunal reaffirmed the principle that adjudication must occur within a reasonable time, emphasizing the legislative intent behind statutory time limits. The Tribunal also reinforced the requirement for substantive evidence in cases of clandestine removal.
Final Determinations on Each Issue: The Tribunal set aside the impugned order due to the unreasonable delay in adjudication, granting consequential relief to the appellant. The Tribunal did not delve into the merits of the case, as the procedural delay itself was sufficient to vitiate the order.
Verbatim Quotes of Crucial Legal Reasoning: The Tribunal highlighted, "The indifference of the Adjudicating Authority to complete the adjudicating process within the statutory time limit cannot be condoned to the detriment of the assessee or detrimental to the interest of the exchequer." This statement encapsulates the Tribunal's stance on the importance of adhering to statutory time limits.
Delay in adjudicating the Show Cause Notice (SCN) issued to the appellant - Clandestine manufacture and removal - demand based on the electricity consumption - HELD THAT:- The SCN was issued in this case on 3.12.2009 and the appellants filed replies on 1.1.2010 and 7.1.2010. Thereafter, the personal hearing was held nine years later on 29.1.2019 and in connection with the personal hearing, the appellant made some additional submissions dated 23.1.2019. The impugned order was passed on 22.2.2019 after the personal hearing. From these dates, it is evident that the appellants had been prompt and vigilant in replying to the SCN and no reason whatsoever is given in the impugned order for not adjudicating the matter immediately and to have waited for over nine years just to fix the personal hearing.
The SCN was issued under section 11A in 2009 before the time limit for deciding the SCNs was introduced in 2011. Even if no limitation is prescribed under the law, then too the adjudicating has to be done within a reasonable period.
Whether the limitation would also apply to cases where the SCN had already been issued? - HELD THAT:- The Statute of Limitation, being a procedural law, would apply to pending cases as well with the rider that if something had already expired under the previous law, the new limitation would not revive it. So long as the issue is alive, the new limitation would apply. The date of cause of action is irrelevant to the limitation - Even if the limitation is counted reckoning the date of amendment of section 11A on 8.4.2011, the date of the impugned order 22.2.2019 is clearly time barred and there is no explanation in the order for the inordinate delay. If we consider that there was no limitation at all, even then the delay of almost ten years is passing the order with no reasons whatsoever recorded for the delay cannot be sustained.
Conclusion - The impugned order set aside due to the unreasonable delay in adjudication, granting consequential relief to the appellant.
The impugned order cannot, therefore, be sustained and needs to be set aside on this ground alone regardless of the merits of the case - appeal allowed.
Issues: (i) Whether supply of medicines by a charitable hospital to inpatients, with recovery of cost, constituted business and made the hospital a dealer liable to tax under the Madhya Pradesh Commercial Tax Act, 1994. (ii) Whether running a canteen in the charitable hospital for attendants of patients constituted a taxable business activity.
Issue (i): Whether supply of medicines by a charitable hospital to inpatients, with recovery of cost, constituted business and made the hospital a dealer liable to tax under the Madhya Pradesh Commercial Tax Act, 1994.
Analysis: The definition of "business" under Section 2(c) and "dealer" under Section 2(h) of the Act requires a person to be carrying on business of buying, selling, supplying or distributing goods. The Court found that the petitioner's main activity was running a charitable hospital and that the supply of medicines in emergency or treatment-related situations was an inseparable part of medical care. The Madhya Pradesh definition was held distinct from the wider Kerala definition that includes transactions "whether in the course of business or not". The Court relied on the principle that hospital treatment is a composite, indivisible service and that mere recovery of the cost of medicines does not by itself amount to a sale or business activity.
Conclusion: The issue was decided in favour of the assessee. Supply of medicines in the course of running the charitable hospital was held not to attract levy of tax.
Issue (ii): Whether running a canteen in the charitable hospital for attendants of patients constituted a taxable business activity.
Analysis: The same statutory definition of business and dealer was applied. The Court treated the canteen activity as incidental to the hospital's charitable functioning and followed the same reasoning that ancillary supply activities, when part of the overall non-business charitable service, do not by themselves create dealer status or taxable business. The conclusion was reached on the same composite-service approach adopted for medicines.
Conclusion: The issue was decided in favour of the assessee. The canteen activity was held not liable to tax under the Act.
Final Conclusion: The petitions succeeded, the impugned tax orders and consequential proceedings were set aside, and the charitable hospital activities in question were held outside the taxing net under the Act.
Ratio Decidendi: Where a charitable hospital's supply of medicines or operation of a patient-attendant canteen is merely incidental to, and inseparable from, the composite service of running the hospital, and the governing sales-tax statute defines "dealer" by reference to carrying on business, such activities do not constitute independent taxable business transactions.
Levy of tax under the provisions of Madhya Pradesh Commercial Tax Act, 1994, for declaration that petitioner is immune from levy of tax under the Act on supply of medicine in the course of activity of running its charitable hospital - supply of such medicine only in specified circumstances as a part of their main non business activity of running the charitable hospital can be said to be connected, incidental or ancillary to their main non business activity or not - HELD THAT:- Heavy reliance has been placed by the learned counsel for the respondents on the decision of the Apex Court in Cochin Port Trust [2015 (4) TMI 936 - SUPREME COURT] to contend that the definition of a dealer is an inclusive definition, whereby wide range of persons have been placed under the ambit of dealer. It includes persons involved in carrying on any business or trading activity and transactions are effected by them whether in the course of business or not. The definition of dealer is in consonance with legislative intent to place the persons engaged in activities of sale and trade which would not otherwise fall in the restricted definition of business. The said contention, in our opinion, is not acceptable for the reason that the definition of a dealer as given under the Kerala General Sales Tax Act 1963 is not pari materia with the definition of a dealer as given under the Act, 1994. The definition under the Kerala General Sales Tax Act, 1963 has specific clauses whereby those persons have also been included within the definition of a dealer who sell or transfer goods as specified therein "whether in the course of business or not"
The words "whether in the course of business or not" as under the Kerela Act are wholly absent in the definition of a dealer as given under the M.P. Act. The definition under the M.P. Act defines a dealer to mean any person who carries on the business of buying, selling, supplying or distributing goods, etc. The only condition for attracting the definition of a dealer to a person is that he must be carrying on the business whereas under the Kerala General Sales Tax Act, 1963 that is not a precondition for bringing him within the definition of a dealer - The said judgment relied upon by the learned counsel for the respondents is distinguishable and is not applicable to the facts of the present case.
In Bhailal Amin General Hospital [2016 (8) TMI 670 - GUJARAT HIGH COURT] the Gujarat High Court has also held that the petitioner therein being a charitable trust running and maintaining a public hospital while purchasing, selling and supplying medicines to patients in order to achieve objects was not engaged in business activity and therefore was not a dealer.
Though it has been contended by the learned counsel for the respondents that the petitioner is earning profit from sale of medicines meaning thereby that it is carrying on completely independent business and its motive is to gain profit hence it has to be treated as a dealer under the Act, but in Aswini Hospital Private Limited and others [2019 (3) TMI 438 - KERALA HIGH COURT] it has been held that actually deriving profit from the sale of goods is by itself wholly insufficient for bringing a person within the definition of a dealer. The contention in this regard is hence liable to be rejected.
Conclusion - The petitioners are exempted from levy of tax under the Act, 1994 on supply of medicine in the course of activity of running its charitable hospital. For the very same reasons as discussed above and applying the same principles, it is further held that the petitioner is exempted from levy of tax under the Act, 1994 in respect of the canteen run by it for the attendants of the patients in the course of activity of running its charitable hospital.
Petition allowed.
Issues: Whether the petitioner, being a signatory to the cheques and a director at the time of issuance but having resigned later, could be proceeded against under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881, and whether the High Court should exercise its inherent jurisdiction to interfere with the summoning and notice orders.
Analysis: The petitioner's resignation was subsequent to the issuance of the cheques, and the complaint contained specific averments that he was a director and one of the signatories. A cheque signatory is directly connected with the dishonoured instrument and falls within the scope of liability contemplated by Section 141 of the Negotiable Instruments Act, 1881. The Court also noted that interference under Section 482 of the Code of Criminal Procedure, 1973 is justified only where unimpeachable material shows that the director could not have been concerned with the issuance of the cheques or where continuation of the prosecution would amount to abuse of process. No such material was shown.
Conclusion: The petitioner could validly be proceeded against for the offence under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881, and no ground for interference with the impugned orders was made out.
Final Conclusion: The challenge to the criminal proceedings failed, and the prosecution against the petitioner was allowed to continue.
Ratio Decidendi: A director who is also a signatory to a dishonoured cheque can be proceeded against under Section 141 where the complaint contains basic averments of responsibility, and inherent jurisdiction should not be used to quash such proceedings absent unimpeachable evidence negating liability.
Dishonour of cheque - vicarious liability of Petitioner, as a signatory to the cheques and a former director of the company - framing of notice under Section 251 CrPC against the Petitioner - HELD THAT:- The incontrovertible facts emerging from this case are that the Petitioner was serving as a whole-time director of Accused No. 1 at the time these cheques were issued, and was also one of the signatories of the cheques. Further, the Petitioner concededly resigned from Accused No. 1 subsequent to the issuance of the cheques. In fact, the Petitioner’s resignation is just one day after the issuance of cheques dated 14th May, 2012.
The Petitioner’s argument that his resignation on 15th May 2012, prior to the presentation of the cheques, is sufficient for quashing the summoning order, is wholly untenable. In this regard, the Petitioner’s reliance on Kamal Goyal is misplaced, as in that case, the petitioner had resigned from the accused company prior to the issuance of the cheques, and had also filed Form No. 32 with the Registrar of Companies prior to the issuance. Based on these facts, this Court had concluded that since the petitioner had resigned well in advance of the cheques being issued, he could not be held liable under Section 138 of the NI Act. However, in the present case, it is undisputed that the Petitioner’s resignation occurred after the cheques in question were issued, with both his resignation and Form No. 32 bearing the date of 15th May, 2012, which is subsequent to the issuance of the cheques dated 12th May, 2012 and 14th May, 2012.
The Petitioner, who is concededly the signatory of the disputed cheques, is liable for the actions of Accused No. 1 under Section 138 read with Section 141 of the NI Act.
Conclusion - The Petitioner is admittedly a signatory to the cheques issued to the Respondent for the discharge of Accused No. 1’s liability. He was serving as a full-time director of Accused No. 1 at the time of issuance of the cheques in question; and resigned from the company only subsequent to the date of the cheques. There are specific averments regarding the Petitioner’s role as the director of Accused No. 1 in the complaint lodged by the Respondent. Therefore, there is indeed sufficient basis to proceed with the prosecution of the Petitioner under Section 138 of the NI Act.
The Court finds no infirmity in the impugned order - petition disposed off.
Issues: (i) whether the respondent was a financial institution and consequently a secured creditor entitled to invoke Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; (ii) whether a writ of prohibition could be issued to restrain the Chief Metropolitan Magistrate from proceeding with the Section 14 application notwithstanding the plea of alternate remedy.
Issue (i): whether the respondent was a financial institution and consequently a secured creditor entitled to invoke Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
Analysis: The statutory scheme requires a secured creditor to be a financial institution within the meaning of Section 2(1)(m)(iv). The relevant notification prescribing the asset threshold was applied to determine whether the respondent satisfied that description on the date it sought to invoke Section 14. On the material placed, the respondent's asset size was below the prescribed threshold, so it did not answer the statutory description of a financial institution for the purposes of the Act.
Conclusion: The respondent was not shown to be a financial institution and therefore could not be treated as a secured creditor entitled to invoke Section 14.
Issue (ii): whether a writ of prohibition could be issued to restrain the Chief Metropolitan Magistrate from proceeding with the Section 14 application notwithstanding the plea of alternate remedy.
Analysis: Where jurisdiction is absent on the face of the record, a writ of prohibition is maintainable to prevent an authority from proceeding further. The availability of a later remedy under Section 17 did not defeat the writ petition because the challenge went to the very competence of the respondent to maintain the Section 14 proceeding. The contention based on retrospectivity was rejected because the respondent's status had to be examined as on the date it invoked jurisdiction.
Conclusion: A writ of prohibition was warranted and the alternate-remedy objection was rejected.
Final Conclusion: The petition succeeded because the Section 14 proceeding was initiated by an entity lacking the statutory competence to invoke that remedy, and the Magistrate was restrained from continuing with the matter.
Ratio Decidendi: A writ of prohibition lies where the very jurisdiction to institute or proceed under Section 14 is absent, and only a person satisfying the statutory definition of financial institution and secured creditor on the relevant date can invoke that remedy.
Initiation of proceedings by invoking the provisions of Section 14 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - financial institution as contemplated by Section 2(1)(m)(iv) of the Act of 2002 or not - HELD THAT:- Since the prayer is to grant a writ of Prohibition, the objection raised on behalf of the 3rd respondent of availability of an alternate remedy after the order is passed under Section 14 of the Act of 2002 does not warrant acceptance. If it is shown that the 3rd respondent is not a financial institution nor a secured creditor, as defined under the Act of 2002, it would not be in a position to invoke the jurisdiction under Section 14 of the Act of 2002 for seeking any assistance for taking possession of the secured asset. It would therefore require consideration as to whether the Chief Metropolitan Magistrate is empowered to entertain the application preferred by the 3rd respondent under Section 14 of the Act of 2002 and provide assistance as sought.
Thus, a “secured creditor” means a “financial institution”, as defined by Section 2(1)(m)(iv) of the Act of 2002, which would thus require such financial institution to satisfy the requirements of the Notification dated 24th February 2020. As per the affidavit-in-reply filed by the Reserve Bank of India, the asset size of the 3rd respondent as on 31st March 2024 was Rs.16.30 crores which is less than the amount of Rs.100 crores as indicated in the Notification dated 24th February 2020 - for the purposes of the Act of 2002, the 3rd respondent is not a financial institution and hence it cannot be a secured creditor so as to invoke the provisions of Section 14 of the Act of 2002.
Conclusion - As the 3rd respondent is not shown to be a “financial institution” for the purposes of invoking the provisions of Section 14 of the Act of 2002, the application filed on its behalf before the Chief Metropolitan Magistrate cannot be adjudicated on merits. A case therefore has been made out for a writ of Prohibition to be issued.
Application disposed off.
TaxTMI 